XML 28 R14.htm IDEA: XBRL DOCUMENT v3.22.0.1
Claim, Claim Adjustment Expense and Future Policy Benefit Reserves
 12 Months Ended
Dec. 31, 2021
Liability for Claims and Claims Adjustment Expense [Abstract]  
Claim, Claim Adjustment Expense and Future Policy Benefit Reserves Claim, Claim Adjustment Expense and Future Policy Benefit Reserves
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 historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and 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 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.
Liability for Unpaid Claim and Claim Adjustment Expenses
The table below reconciles the net liability for unpaid claim and claim adjustment expenses to the amount presented on the Consolidated Balance Sheets.
As of December 31
(In millions)2021
Net liability for unpaid claim and claim adjustment expenses:
Specialty$5,265 
Commercial8,065 
International1,940 
Life & Group (1)
3,641 
Corporate & Other294 
Total net claim and claim adjustment expenses19,205 
Reinsurance receivables: (2)
Specialty1,168 
Commercial825 
International340 
Life & Group113 
Corporate & Other (3)
2,523 
Total reinsurance receivables4,969 
Total gross liability for unpaid claim and claim adjustment expenses$24,174 
(1) The Life & Group segment amounts are primarily related to long term care claim reserves, but also include amounts related to unfunded structured settlements arising from short-duration contracts. Long term care policies are long-duration contracts.
(2) Reinsurance receivables presented are gross of the allowance for uncollectible reinsurance and do not include reinsurance receivables related to paid losses.
(3) The Corporate & Other Reinsurance receivables are primarily related to A&EP claims covered under the Loss Portfolio Transfer (LPT).
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of the Life & Group segment.
As of or for the years ended December 31
(In millions)202120202019
Reserves, beginning of year:
Gross$22,706 $21,720 $21,984 
Ceded4,005 3,835 4,019 
Net reserves, beginning of year18,701 17,885 17,965 
Reduction of net reserves due to Excess Workers' Compensation Loss Portfolio Transfer(632)— — 
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year5,970 5,793 5,356 
Increase (decrease) in provision for insured events of prior years(104)(119)(127)
Amortization of discount174 183 184 
Total net incurred (1)
6,040 5,857 5,413 
Net payments attributable to:
Current year events(1,014)(948)(992)
Prior year events(3,830)(4,216)(4,584)
Total net payments(4,844)(5,164)(5,576)
Foreign currency translation adjustment and other(60)123 83 
Net reserves, end of year19,205 18,701 17,885 
Ceded reserves, end of year4,969 4,005 3,835 
Gross reserves, end of year$24,174 $22,706 $21,720 
(1) Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, the loss on the Excess Workers' Compensation LPT, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.
Reserving Methodology
In developing claim and claim adjustment expense (loss or losses) reserve estimates, the Company's actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a reserve group level. Every reserve group is reviewed at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. Factors considered include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in the Company's pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. In addition to the detailed analyses, the Company reviews actual loss emergence for all products each quarter.
In developing the loss reserve estimates for property and casualty contracts, the Company generally projects ultimate losses using several common actuarial methods as listed below. The Company reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as a result of the Company's consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims.
The most frequently utilized methods to project ultimate losses include the following:
•Paid development: The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss.
•Incurred development: The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.
•Loss ratio: The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year.
•Bornhuetter-Ferguson paid loss: The Bornhuetter-Ferguson paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method.
•Bornhuetter-Ferguson incurred loss: The Bornhuetter-Ferguson incurred loss method is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses.
•Frequency times severity: The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates.
•Stochastic modeling: The stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, the Company's actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of the Company's products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, the Company may not assign much, if any weight to the paid and incurred development methods. The Company may use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because the Company's history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, the
Company may also use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, the Company uses additional methods tailored to the characteristics of the specific situation.
The Company's reserving methodologies for mass tort and A&EP are similar as both are based on detailed reviews of large accounts with estimates of ultimate payments based on the facts in each case and the Company's view of applicable law and coverage litigation.
Gross and Net Carried Reserves
The following tables present the gross and net carried reserves.
December 31, 2021 Specialty CommercialInternationalLife & GroupCorporate & OtherTotal
(In millions)
Gross Case Reserves$1,578 $3,184 $859 $3,383 $1,551 $10,555 
Gross IBNR Reserves4,855 5,706 1,421 371 1,266 13,619 
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,433 $8,890 $2,280 $3,754 $2,817 $24,174 
Net Case Reserves$1,338 $2,850 $744 $3,291 $146 $8,369 
Net IBNR Reserves3,927 5,215 1,196 350 148 10,836 
Total Net Carried Claim and Claim Adjustment Expense Reserves$5,265 $8,065 $1,940 $3,641 $294 $19,205 
December 31, 2020 Specialty CommercialInternationalLife & GroupCorporate & OtherTotal
(In millions)
Gross Case Reserves$1,567 $3,215 $892 $3,406 $1,614 $10,694 
Gross IBNR Reserves4,181 5,035 1,199 337 1,260 12,012 
Total Gross Carried Claim and Claim Adjustment Expense Reserves$5,748 $8,250 $2,091 $3,743 $2,874 $22,706 
Net Case Reserves$1,410 $2,885 $777 $3,298 $560 $8,930 
Net IBNR Reserves3,488 4,590 1,045 317 331 9,771 
Total Net Carried Claim and Claim Adjustment Expense Reserves$4,898 $7,475 $1,822 $3,615 $891 $18,701 
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
Years ended December 31
(In millions)202120202019
Pretax (favorable) unfavorable development:
Specialty$(45)$(61)$(92)
Commercial(6)(7)(40)
International2 (2)21 
Corporate & Other60 50 38 
Total pretax (favorable) unfavorable development$11 $(20)$(73)
Unfavorable development of $60 million and $50 million was recorded within the Corporate & Other segment for the years ended 2021 and 2020 due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse. Unfavorable development of $38 million was recorded within the Corporate & Other segment for the year ended 2019 primarily due to higher than expected emergence in environmental mass tort exposures in older accident years.
Segment Development Tables
For the Specialty, Commercial and International segments, the following tables present further detail and commentary on the development reflected in the financial statements for each of the periods presented. Also presented are loss reserve development tables that illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short-duration insurance contracts for certain lines of business within each of these segments. Not all lines of business or segments are presented based on their context to the Company's overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short-duration contracts when the contracts are not expected to remain in force for an extended period of time.
The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of the Company's expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.
The information in the tables is reported on a net basis after reinsurance and does not include the effects of discounting. The information contained in calendar years 2020 and prior is unaudited. Information contained in the tables pertaining to the Company's International segment has been presented at the year-end 2021 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate changes between calendar years. The Company has presented development information for the Hardy business prospectively from the date of acquisition and is presented as a separate table within the Company's International segment. To the extent the Company enters into a commutation, the transaction is reported on a prospective basis. To the extent that the Company enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with the disposed of business.
The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.
IBNR includes reserves for incurred but not reported losses and expected development on case reserves. The Company does not establish case reserves for allocated loss adjusted expenses (ALAE), therefore ALAE reserves are also included in the estimate of IBNR.
Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Years ended December 31
(In millions)202120202019
Pretax (favorable) unfavorable development:
Medical Professional Liability$23 $35 $75 
Other Professional Liability and Management Liability24 (15)(69)
Surety(73)(69)(92)
Warranty(14)(7)(15)
Other(5)(5)9 
Total pretax (favorable) unfavorable development$(45)$(61)$(92)
2021
Unfavorable development in medical professional liability was due to higher than expected large loss activity in recent accident years.
Unfavorable development in other professional liability and management liability was due to higher than expected frequency of large losses in multiple accident years, and higher than expected claim severity and frequency in the Company’s cyber business in recent accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Favorable development in warranty was due to lower than expected loss emergence in a recent accident year.
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years and unfavorable outcomes on specific claims in older accident years.
Favorable development in other professional liability and management liability was primarily due to lower than expected loss emergence in accident year 2017 and accident years prior to 2010.
Favorable development in surety was due to lower than expected frequency and lack of systemic loss activity for accident years 2019 and prior.
2019
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2016 through 2018 in the Company's aging services business, higher than expected severity in accident year 2013 in the Company's allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in the Company's dentists business.
Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions, lower than expected large claim losses in recent accident years in the Company's public company directors and officers liability (D&O) business and lower than expected loss adjustment expenses across accident years 2010 through 2018.
Favorable development in surety was due to lower than expected frequency for accident years 2018 and prior.
Favorable development in warranty was due to lower than expected paid loss emergence on vehicle products.
Specialty - Line of Business Composition
The table below provides the line of business composition of the net liability for unpaid claim and claim adjustment expenses for the Specialty segment.
As of December 31
(In millions)2021
Net liability for unpaid claim and claim adjustment expenses:
Medical Professional Liability$1,556 
Other Professional Liability and Management Liability3,159 
Surety406 
Warranty44 
Other100 
Total net liability for unpaid claim and claim adjustment expenses$5,265 
Specialty - Medical Professional Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$464 $469 $508 $498 $493 $484 $493 $499 $497 $497 $4 17,755 
2013462 479 500 513 525 535 545 531 530 11 19,565 
2014450 489 537 530 535 529 527 524 8 19,800 
2015433 499 510 494 488 510 501 28 18,170 
2016427 487 485 499 508 510 24 16,085 
2017412 449 458 460 455 41 15,197 
2018404 429 431 448 60 14,997 
2019430 445 458 156 13,804 
2020477 476 347 9,935 
2021377 337 6,761 
Total$4,776 $1,016 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$14 $117 $221 $323 $388 $427 $457 $479 $482 $487 
201317 119 255 355 414 462 495 508 512 
201423 136 258 359 417 472 489 497 
201522 101 230 313 384 420 444 
201618 121 246 339 401 436 
201719 107 235 308 355 
201821 115 211 290 
201917 91 183 
202011 61 
202111 
Total$3,276 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,500 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201228 
Liability for unallocated claim adjustment expenses for accident years presented28 
Total net liability for unpaid claim and claim adjustment expenses$1,556 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$5 $39 $(10)$(5)$(9)$9 $6 $(2)$— $33 
201317 21 13 12 10 10 (14)(1)68 
201439 48 (7)5 (6)(2)(3)74 
201566 11 (16)(6)22 (9)68 
201660 (2)14 9 2 83 
201737 9 2 (5)43 
201825 2 17 44 
201915 13 28 
2020(1)(1)
Total net development for the accident years presented above52 32 13 
Total net development for accident years prior to 201221 3 3 
Total unallocated claim adjustment expense development2 — 7 
Total$75 $35 $23 
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
Specialty - Other Professional Liability and Management Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$923 $909 $887 $878 $840 $846 $833 $831 $850 $848 $18 18,506 
2013884 894 926 885 866 863 850 846 833 30 17,950 
2014878 898 885 831 835 854 845 841 37 17,577 
2015888 892 877 832 807 813 836 41 17,436 
2016901 900 900 904 907 891 84 17,968 
2017847 845 813 791 775 152 18,159 
2018850 864 869 906 202 19,926 
2019837 845 856 283 19,357 
2020930 944 568 19,095 
20211,037 911 15,487 
Total$8,767 $2,326 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$56 $248 $400 $573 $651 $711 $755 $792 $812 $816 
201354 249 447 618 702 754 771 779 787 
201451 223 392 515 647 707 743 787 
201560 234 404 542 612 677 725 
201664 248 466 625 701 736 
201757 222 394 498 557 
201854 282 473 599 
201964 263 422 
202067 248 
202158 
Total$5,735 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$3,032 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201274 
Liability for unallocated claim adjustment expenses for accident years presented53 
Total net liability for unpaid claim and claim adjustment expenses$3,159 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$(14)$(22)$(9)$(38)$6 $(13)$(2)$19 $(2)$(75)
201310 32 (41)(19)(3)(13)(4)(13)(51)
201420 (13)(54)4 19 (9)(4)(37)
20154 (15)(45)(25)6 23 (52)
2016(1)— 4 3 (16)(10)
2017(2)(32)(22)(16)(72)
201814 5 37 56 
20198 11 19 
202014 14 
Total net development for the accident years presented above(35)6 34 
Total net development for accident years prior to 2012(20)(21)(12)
Total unallocated claim adjustment expense development(14)— 2 
Total$(69)$(15)$24 
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
Specialty - Surety
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$120 $122 $98 $70 $52 $45 $39 $38 $37 $36 $1 5,586 
2013120 121 115 106 91 87 83 82 82 2 5,088 
2014123 124 94 69 60 45 45 43 1 5,118 
2015131 131 104 79 63 58 53 9 5,055 
2016124 124 109 84 67 64 10 5,521 
2017120 115 103 84 71 9 5,795 
2018114 108 91 62 19 6,097 
2019119 112 98 44 5,816 
2020128 119 104 4,006 
2021137 129 2,592 
Total$765 $328 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$5 $32 $34 $35 $35 $36 $37 $37 $36 $36 
201316 40 69 78 78 78 77 78 79 
20147 30 38 36 38 38 39 39 
20157 26 38 40 42 44 42 
20165 37 45 45 43 43 
201723 37 41 46 49 
20185 25 34 39 
201912 34 44 
20204 20 
20215 
Total$396 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$369 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201217 
Liability for unallocated claim adjustment expenses for accident years presented20 
Total net liability for unpaid claim and claim adjustment expenses$406 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$2 $(24)$(28)$(18)$(7)$(6)$(1)$(1)$(1)$(84)
20131 (6)(9)(15)(4)(4)(1)— (38)
20141 (30)(25)(9)(15)— (2)(80)
2015— (27)(25)(16)(5)(5)(78)
2016— (15)(25)(17)(3)(60)
2017(5)(12)(19)(13)(49)
2018(6)(17)(29)(52)
2019(7)(14)(21)
2020(9)(9)
Total net development for the accident years presented above(79)(67)(76)
Total net development for accident years prior to 2012(3)(2)3 
Total unallocated claim adjustment expense development(10)— — 
Total$(92)$(69)$(73)
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Years ended December 31
(In millions)202120202019
Pretax (favorable) unfavorable development:
Commercial Auto$53 $33 $(25)
General Liability15 15 16 
Workers' Compensation(82)(96)(13)
Property and Other8 41 (18)
Total pretax (favorable) unfavorable development$(6)$(7)$(40)
2021
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s middle market and construction businesses in multiple accident years.
Unfavorable development in general liability was due to higher than expected claim severity in the Company’s construction and umbrella businesses in multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
2020
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company's middle market and construction business in recent accident years.
Unfavorable development in general liability was driven by increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in accident year 2019 in the Company's middle market, national accounts and marine business units.
2019
Favorable development in commercial auto was primarily due to continued lower than expected severity across accident years 2015 and prior and a decline in bodily injury frequency in accident year 2018.
Unfavorable development in general liability was driven by higher than expected large loss emergence in the Company's umbrella business in multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in accident years 2012 through 2018.
Favorable development in property and other was primarily driven by lower than expected claim severity related to catastrophe events in accident years 2017 and 2018.
Commercial - Line of Business Composition
The table below provides the line of business composition of the net liability for unpaid claim and claim adjustment expenses for the Commercial segment.
As of December 31
(In millions)2021
Net Claim and claim adjustment expenses:
Commercial Auto$673 
General Liability2,911 
Workers' Compensation3,850 
Property and Other631 
Total net liability for claim and claim adjustment expenses$8,065 
Commercial - Commercial Auto
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$275 $289 $299 $303 $307 $299 $299 $297 $296 $295 $1 46,288 
2013246 265 265 249 245 245 241 241 241 2 39,430 
2014234 223 212 205 205 201 201 202 2 33,628 
2015201 199 190 190 183 181 183 3 30,427 
2016198 186 186 186 190 195 3 30,449 
2017199 198 200 221 232 5 30,940 
2018229 227 227 245 8 34,292 
2019257 266 289 31 37,142 
2020310 303 107 28,837 
2021397 271 27,182 
Total$2,582 $433 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$78 $160 $220 $259 $282 $285 $290 $291 $291 $292 
201374 135 168 200 225 234 238 239 239 
201464 102 137 166 187 196 198 199 
201552 96 130 153 172 175 178 
201652 93 126 154 175 185 
201758 107 150 178 203 
201866 128 175 212 
201977 147 203 
202071 134 
202183 
Total$1,928 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$654 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 20125 
Liability for unallocated claim adjustment expenses for accident years presented14 
Total net liability for unpaid claim and claim adjustment expenses$673 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$14 $10 $4 $4 $(8)$— $(2)$(1)$(1)$20 
201319 — (16)(4)— (4)— — (5)
2014(11)(11)(7)— (4)— 1 (32)
2015(2)(9)— (7)(2)2 (18)
2016(12)— — 4 5 (3)
2017(1)2 21 11 33 
2018(2)— 18 16 
20199 23 32 
2020(7)(7)
Total net development for the accident years presented above(17)31 52 
Total net development for accident years prior to 2012(7)2 1 
Total unallocated claim adjustment expense development(1)— — 
Total$(25)$33 $53 
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
Commercial - General Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$587 $611 $639 $636 $619 $635 $635 $630 $632 $632 $20 35,313 
2013650 655 650 655 613 623 620 623 624 24 33,706 
2014653 658 654 631 635 658 659 659 28 28,064 
2015581 576 574 589 600 602 617 42 24,118 
2016623 659 667 671 673 683 68 24,511 
2017632 632 632 634 630 67 22,195 
2018653 644 646 639 205 19,917 
2019680 682 682 330 18,602 
2020723 722 516 13,028 
2021782 706 9,759 
Total$6,670 $2,006 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$28 $132 $247 $374 $454 $510 $559 $579 $597 $602 
201331 128 240 352 450 510 551 572 582 
201431 119 247 376 481 547 569 607 
201519 110 230 357 446 501 530 
201632 163 279 407 481 524 
201723 118 250 399 471 
201833 107 228 307 
201925 98 181 
202023 99 
202126 
Total$3,929 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$2,741 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2012119 
Liability for unallocated claim adjustment expenses for accident years presented51 
Total net liability for unpaid claim and claim adjustment expenses$2,911 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$24 $28 $(3)$(17)$16 $— $(5)$2 $— $45 
20135 (5)5 (42)10 (3)3 1 (26)
20145 (4)(23)4 23 1 — 6 
2015(5)(2)15 11 2 15 36 
201636 8 4 2 10 60 
2017— — 2 (4)(2)
2018(9)2 (7)(14)
20192 — 2 
2020(1)(1)
Total net development for the accident years presented above21 16 14 
Total net development for accident years prior to 2012(4)(1)(1)
Total unallocated claim adjustment expense development(1)— 2 
Total$16 $15 $15 
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
Commercial - Workers' Compensation
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$601 $627 $659 $669 $678 $673 $671 $668 $663 $664 $66 42,804 
2013537 572 592 618 593 582 561 552 548 91 38,867 
2014467 480 479 452 450 446 439 448 105 33,502 
2015422 431 406 408 394 382 372 101 31,894 
2016426 405 396 382 366 355 104 31,981 
2017440 432 421 400 402 92 33,121 
2018450 440 428 415 104 34,851 
2019452 449 437 134 34,248 
2020477 466 228 29,188 
2021468 300 25,711 
Total$4,575 $1,325 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$87 $232 $342 $416 $470 $509 $524 $536 $538 $541 
201380 213 300 370 417 419 411 414 417 
201461 159 215 258 282 290 297 306 
201551 131 180 212 231 243 251 
201653 129 169 198 219 227 
201763 151 207 243 265 
201868 163 229 259 
201971 169 223 
202065 147 
202167 
Total$2,703 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,872 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 20121,941 
Other (2)
(14)
Liability for unallocated claim adjustment expenses for accident years presented51 
Total net liability for unpaid claim and claim adjustment expenses$3,850 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021Total
Accident Year
2012$26 $32 $10 $9 $(5)$(2)$(3)$(5)$1 $63 
201335 20 26 (25)(11)(21)(9)(4)11 
201413 (1)(27)(2)(4)(7)9 (19)
20159 (25)2 (14)(12)(10)(50)
2016(21)(9)(14)(16)(11)(71)
2017(8)(11)(21)2 (38)
2018(10)(12)(13)(35)
2019(3)(12)(15)
2020(11)(11)
Total net development for the accident years presented above(77)(85)(49)
Adjustment for development on a discounted basis3 2 2 
Total net development for accident years prior to 201238 (13)(35)
Total unallocated claim adjustment expense development23 — — 
Total$(13)$(96)$(82)
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
(2) Other includes the effect of discounting lifetime claim reserves.
International
The following table presents further detail of the development recorded for the International segment.
Years ended December 31
(In millions)202120202019
Pretax (favorable) unfavorable development:
Commercial$(35)(2)$(8)
Specialty36 3 37 
Other1 (3)(8)
Total pretax (favorable) unfavorable development $2 $(2)$21 
(1) Effective December 31, 2021 the International lines of business were consolidated to align with domestic operations. Prior period information has been conformed to the new line of business presentation.
2021
Favorable development in commercial was due to lower than expected loss emergence across multiple accident years.
Unfavorable development in specialty was due to higher than expected claim severity in the Company’s medical treatment and professional liability businesses in multiple accident years.
2019
Unfavorable development in specialty was primarily driven by professional indemnity within Europe financial lines in accident years 2017 and 2018 due to potential design and construct exposures.
International - Line of Business Composition
The table below provides the composition of the net liability for unpaid claim and claim adjustment expenses for the International segment.
As of December 31
(In millions)2021
Net Claim and claim adjustment expenses:
International excluding Hardy$1,400 
Hardy540 
Total net liability for claim and claim adjustment expenses$1,940 
International, Excluding Hardy
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$278 $285 $269 $262 $261 $254 $247 $241 $236 $250 $16 24,998 
2013285 301 293 273 269 260 251 247 251 12 23,967 
2014288 303 303 291 283 300 301 294 16 24,946 
2015301 317 316 298 292 294 297 27 23,357 
2016296 315 300 297 287 302 37 17,776 
2017312 378 401 393 388 84 18,470 
2018384 402 407 406 81 20,726 
2019357 371 368 91 17,974 
2020398 389 184 13,909 
2021426 297 10,401 
Total$3,371 $845 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$46 $117 $151 $172 $188 $200 $210 $213 $215 $218 
201351 116 144 161 176 186 206 218 224 
201454 126 154 173 190 211 245 250 
201558 137 168 189 213 228 239 
201668 136 164 188 200 223 
201767 152 193 223 247 
201894 173 221 252 
201976 171 209 
202062 133 
202158 
Total$2,053 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,318 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201247 
Liability for unallocated claim adjustment expenses for accident years presented35 
Total net liability for unpaid claim and claim adjustment expenses$1,400 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Total (2)
Accident Year
2012$7 $(16)$(7)$(1)$(7)$(7)$(6)$(5)$14 $(28)
201316 (8)(20)(4)(9)(9)(4)4 (34)
201415 — (12)(8)17 1 (7)6 
201516 (1)(18)(6)2 3 (4)
201619 (15)(3)(10)15 6 
201766 23 (8)(5)76 
201818 5 (1)22 
201914 (3)11 
2020(9)(9)
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
(2) The amounts included in the loss reserve development tables above are presented at the year-end 2021 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate fluctuations between calendar years. The amounts included within the table on page 101 presenting the detail of the development recorded within the International segment include the impact of fluctuations in foreign currency exchange rates.
International - Hardy
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar YearAs of December 31, 2021
(In millions, except reported claims data)Net Claim and Allocated Claim Adjustment Expense Reserves at Acquisition
Net Incurred Claim and Allocated Claim Adjustment Expenses in 2012(1)(2)
Total Acquired Net Claim and Allocated Claim Adjustment Expense Reserves and 2012 Incurreds
2013(1)(2)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021IBNRCumulative Number of Claims
Accident Year
2012$34 $71 $105 $105 $112 $120 $113 $114 $116 $115 $113 $114 $(3)7,045 
2013132 147 139 140 142 145 146 146 144 7 7,893 
2014186 184 178 171 172 173 172 169 (6)8,493 
2015191 181 179 180 178 180 181 (1)9,669 
2016231 249 238 226 228 222 (1)10,746 
2017246 256 244 246 253 8 13,029 
2018275 306 310 316 36 14,868 
2019224 228 223 42 10,891 
2020215 205 87 5,963 
2021181 128 2,244 
Total$2,008 $297 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2012(1)
2013(1)(2)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Accident Year
2012$14 $80 $100 $109 $107 $109 $110 $111 $112 $115 
201338 102 122 128 132 135 139 140 141 
201456 124 142 152 157 163 165 166 
201530 99 130 146 158 166 164 
201664 146 174 183 196 208 
201753 152 185 207 215 
201855 176 205 236 
201944 104 142 
202028 79 
202113 
Total$1,479 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$529 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 20123 
Liability for unallocated claim adjustment expenses for accident years presented8 
Total net liability for unpaid claim and claim adjustment expenses$540 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2013(1)(2)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021
Total(3)
Accident Year
2012$— $7 $8 $(7)$1 $2 $(1)$(2)$1 $9 
201315 (8)1 2 3 1 — (2)12 
2014(2)(6)(7)1 1 (1)(3)(17)
2015(10)(2)1 (2)2 1 (10)
201618 (11)(12)2 (6)(9)
201710 (12)2 7 7 
201831 4 6 41 
20194 (5)(1)
2020(10)(10)
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
(2) Data presented for this calendar year is post-acquisition of Hardy.
(3) The amounts included in the loss reserve development tables above are presented at the year-end 2021 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate fluctuations between calendar years. The amounts included within the table on page 101 presenting the detail of the development recorded within the International segment include the impact of fluctuations in foreign currency exchange rates.
The table below presents information about average historical claims duration as of December 31, 2021 and is presented as required supplementary information, which is unaudited.
Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year:
12345678910
Specialty
Medical Professional Liability3.6 %18.3 %23.7 %18.2 %12.0 %8.3 %5.1 %2.8 %0.7 %1.0 %
Other Professional Liability and Management Liability6.7 %21.9 %21.1 %16.7 %9.9 %6.4 %4.3 %3.5 %1.7 %0.5 %
Surety(1)
14.1 %48.7 %18.9 %2.6 %1.1 %1.3 %— %0.4 %(0.8)%— %
Commercial
Commercial Auto26.7 %23.2 %18.0 %13.6 %10.1 %3.2 %1.5 %0.4 %— %0.3 %
General Liability4.1 %14.1 %18.0 %19.0 %13.5 %8.7 %5.6 %4.1 %2.2 %0.8 %
Workers' Compensation14.7 %21.7 %13.9 %9.5 %6.4 %2.7 %1.1 %1.5 %0.4 %0.5 %
International
International - Excluding Hardy19.0 %23.7 %10.8 %7.4 %6.1 %5.7 %6.8 %2.6 %1.6 %1.2 %
International - Hardy (2)
20.4 %36.1 %13.4 %6.9 %4.4 %3.9 %1.0 %0.6 %0.7 %
(1) Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables.
(2) Average historical claims duration for Hardy is presented prospectively beginning with the first full year subsequent to acquisition, 2013.
A&EP Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a LPT. At the effective date of the transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, the Company recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Consolidated Statements of Operations.
The following table presents the impact of the Loss Portfolio Transfer on the Consolidated Statements of Operations.
Years ended December 31
(In millions)202120202019
Additional amounts ceded under LPT:
Net A&EP adverse development before consideration of LPT$143 $125 $150 
Provision for uncollectible third-party reinsurance on A&EP(5)(25)(25)
Total additional amounts ceded under LPT138 100 125 
Retroactive reinsurance benefit recognized(107)(94)(107)
Pretax impact of deferred retroactive reinsurance$31 $6 $18 
Net unfavorable prior year development of $143 million, $125 million and $150 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2021, 2020 and 2019. The unfavorable development in 2021, 2020 and 2019 was primarily driven by higher than anticipated defense and indemnity costs on known direct asbestos and environmental accounts and a reduction in estimated reinsurance recoverable. Additionally, in 2021, 2020 and 2019, the Company released $5 million, $25 million and $25 million of its provision for uncollectible third-party reinsurance.
As of December 31, 2021 and 2020, the cumulative amounts ceded under the LPT were $3.4 billion and $3.3 billion. The unrecognized deferred retroactive reinsurance benefit was $429 million and $398 million as of December 31, 2021 and 2020 and is included within Other liabilities on the Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $3.1 billion as of December 31, 2021. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the Company’s A&EP claims.
Excess Workers' Compensation LPT
On February 5, 2021, CCC completed a transaction with Cavello Bay Reinsurance Limited (Cavello), a subsidiary of Enstar Group Limited, under which certain legacy excess workers' compensation (EWC) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, the Company ceded approximately $690 million of net EWC claim and allocated claim adjustment expense reserves to Cavello under an LPT with an aggregate limit of $1 billion. The Company paid Cavello a reinsurance premium of $697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $64 million. After transaction costs, the Company recognized an after-tax loss of approximately $12 million in the Corporate & Other segment in the first quarter of 2021 related to the EWC LPT.
As of December 31, 2021, the cumulative amount ceded under the EWC LPT was $690 million.
Cavello established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $634 million as of December 31, 2021.
Life & Group Policyholder Reserves
The Company’s Life & Group segment includes its run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and the Company has the ability to increase policy premiums, subject to state regulatory approval.
The Company maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for the Life & Group segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, the Company’s actuaries perform a detailed claim reserve review on an annual basis. The review analyzes the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries review mortality experience on an annual basis. The Company’s recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent reviews.
The Company completed its annual claim reserve reviews in the third quarter of 2021, 2020 and 2019 resulting in $40 million, $37 million and $56 million pretax reductions in long term care reserves primarily due to lower claim severity than anticipated in the reserve estimates. The Company's 2021 and 2020 annual claim reserve reviews also resulted in $2 million and $46 million pretax increases in the structured settlement claim reserves primarily due to lower discount rate assumptions and mortality assumption changes.
Future policy benefit reserves consist of active life reserves related to the Company’s long term care policies for policyholders that are not currently receiving benefits and represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, the Company’s long term care reserves may be subject to material increases if actual experience develops adversely to the Company’s expectations.
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a GPV to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required.
The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2021, indicated that recorded reserves included a pretax margin of approximately $72 million.
The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2020 and 2019, indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the
premium deficiency resulted in a $74 million and a $216 million pretax increase in policyholders' benefits reflected in the Company's results of operations.