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Claim and Claim Adjustment Expense Reserves and Future Policy Benefit Reserves
 12 Months Ended
Dec. 31, 2022
Liability for Claims and Claims Adjustment Expense [Abstract]  
Claim, Claim Adjustment Expense and Future Policy Benefit Reserves Claim and Claim Adjustment Expense Reserves 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, social 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 long term care, 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)2022
Net liability for unpaid claim and claim adjustment expenses:
Specialty$5,563 
Commercial8,430 
International2,003 
Life & Group (1)
3,573 
Corporate & Other339 
Total net claim and claim adjustment expenses19,908 
Reinsurance receivables: (2)
Specialty1,315 
Commercial965 
International400 
Life & Group101 
Corporate & Other (3)
2,410 
Total reinsurance receivables5,191 
Total gross liability for unpaid claim and claim adjustment expenses$25,099 
(1) The Life & Group segment amounts are primarily related to long term care claim reserves for policyholders on claim, 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)202220212020
Reserves, beginning of year:
Gross$24,174 $22,706 $21,720 
Ceded4,969 4,005 3,835 
Net reserves, beginning of year19,205 18,701 17,885 
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 year6,243 5,970 5,793 
Increase (decrease) in provision for insured events of prior years(187)(104)(119)
Amortization of discount170 174 183 
Total net incurred (1)
6,226 6,040 5,857 
Net payments attributable to:
Current year events(913)(1,014)(948)
Prior year events(4,348)(3,830)(4,216)
Total net payments(5,261)(4,844)(5,164)
Foreign currency translation adjustment and other(262)(60)123 
Net reserves, end of year19,908 19,205 18,701 
Ceded reserves, end of year5,191 4,969 4,005 
Gross reserves, end of year$25,099 $24,174 $22,706 
(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, 2022 Specialty CommercialInternationalLife & GroupCorporate & OtherTotal
(In millions)
Gross Case Reserves$1,529 $3,156 $817 $3,457 $1,428 $10,387 
Gross IBNR Reserves5,349 6,239 1,586 217 1,321 14,712 
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,878 $9,395 $2,403 $3,674 $2,749 $25,099 
Net Case Reserves$1,310 $2,809 $686 $3,377 $137 $8,319 
Net IBNR Reserves4,253 5,621 1,317 196 202 11,589 
Total Net Carried Claim and Claim Adjustment Expense Reserves$5,563 $8,430 $2,003 $3,573 $339 $19,908 
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 $19,205 
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
Years ended December 31
(In millions)202220212020
Pretax (favorable) unfavorable development:
Specialty$(40)$(45)$(61)
Commercial(43)(6)(7)
International(13)2 (2)
Corporate & Other64 6050 
Total pretax (favorable) unfavorable development$(32)$11 $(20)
Unfavorable development of $64 million was recorded within the Corporate & Other segment for the year ended December 31, 2022 largely associated with legacy mass tort abuse claims, including the Diocese of Rochester proposed settlement. Unfavorable development of $60 million and $50 million was recorded within the Corporate & Other segment for the years ended December 31, 2021 and 2020 due to legacy mass tort exposures, primarily related to abuse.
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 2021 and prior is unaudited. Information contained in the tables pertaining to the Company's International segment has been presented at the year-end 2022 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)202220212020
Pretax (favorable) unfavorable development:
Medical Professional Liability$18 $23 $35 
Other Professional Liability and Management Liability50 24 (15)
Surety(83)(73)(69)
Warranty(21)(14)(7)
Other(4)(5)(5)
Total pretax (favorable) unfavorable development$(40)$(45)$(61)
2022
Unfavorable development in medical professional liability was due to higher than expected large loss activity in multiple accident years.
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber and professional errors and omissions (E&O) businesses in multiple 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.
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
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)2022
Net liability for unpaid claim and claim adjustment expenses:
Medical Professional Liability$1,526 
Other Professional Liability and Management Liability3,514 
Surety396 
Warranty50 
Other77 
Total net liability for unpaid claim and claim adjustment expenses$5,563 
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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$462 $479 $500 $513 $525 $535 $545 $531 $530 $530 $5 19,587 
2014450 489 537 530 535 529 527 524 527 12 19,818 
2015433 499 510 494 488 510 501 498 22 18,203 
2016427 487 485 499 508 510 508 12 16,136 
2017412 449 458 460 455 460 30 15,288 
2018404 429 431 448 470 31 15,163 
2019430 445 458 471 101 14,189 
2020477 476 455 226 10,679 
2021377 376 259 8,801 
2022329 290 6,717 
Total$4,624 $988 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$17 $119 $255 $355 $414 $462 $495 $508 $512 $517 
201423 136 258 359 417 472 489 497 504 
201522 101 230 313 384 420 444 458 
201618 121 246 339 401 436 460 
201719 107 235 308 355 388 
201821 115 211 290 349 
201917 91 183 280 
202011 61 139 
202111 49 
202210 
Total$3,154 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,470 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201325 
Liability for unallocated claim adjustment expenses for accident years presented31 
Total net liability for unpaid claim and claim adjustment expenses$1,526 
            
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$17 $21 $13 $12 $10 $10 $(14)$(1)$— $68 
201439 48 (7)5 (6)(2)(3)3 77 
201566 11 (16)(6)22 (9)(3)65 
201660 (2)14 9 2 (2)81 
201737 9 2 (5)5 48 
201825 2 17 22 66 
201915 13 13 41 
2020(1)(21)(22)
2021(1)(1)
Total net development for the accident years presented above34 13 16 
Total net development for accident years prior to 20131 3 (3)
Total unallocated claim adjustment expense development— 7 5 
Total$35 $23 $18 
(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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$884 $894 $926 $885 $866 $863 $850 $846 $833 $829 $21 17,953 
2014878 898 885 831 835 854 845 841 842 29 17,583 
2015888 892 877 832 807 813 836 855 30 17,452 
2016901 900 900 904 907 891 888 57 17,976 
2017847 845 813 791 775 758 107 18,181 
2018850 864 869 906 923 142 19,995 
2019837 845 856 876 173 19,447 
2020930 944 951 408 19,333 
20211,037 1,038 706 17,983 
20221,120 1,000 15,327 
Total$9,080 $2,673 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$54 $249 $447 $618 $702 $754 $771 $779 $787 $791 
201451 223 392 515 647 707 743 787 802 
201560 234 404 542 612 677 725 794 
201664 248 466 625 701 736 784 
201757 222 394 498 557 596 
201854 282 473 599 706 
201964 263 422 567 
202067 248 400 
202158 217 
202264 
Total$5,721 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$3,359 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201399 
Liability for unallocated claim adjustment expenses for accident years presented56 
Total net liability for unpaid claim and claim adjustment expenses$3,514 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$10 $32 $(41)$(19)$(3)$(13)$(4)$(13)$(4)$(55)
201420 (13)(54)4 19 (9)(4)1 (36)
20154 (15)(45)(25)6 23 19 (33)
2016(1)— 4 3 (16)(3)(13)
2017(2)(32)(22)(16)(17)(89)
201814 5 37 17 73 
20198 11 20 39 
202014 7 21 
20211 1 
Total net development for the accident years presented above(13)36 41 
Total net development for accident years prior to 2013(2)(14)9 
Total unallocated claim adjustment expense development— 2 — 
Total$(15)$24 $50 
(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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$120 $121 $115 $106 $91 $87 $83 $82 $82 $82 $2 5,092 
2014123 124 94 69 60 45 45 43 42 3 5,127 
2015131 131 104 79 63 58 53 45 1 5,074 
2016124 124 109 84 67 64 58 5 5,544 
2017120 115 103 84 71 66 4 5,855 
2018114 108 91 62 56 16 6,196 
2019119 112 98 87 21 6,033 
2020128 119 81 51 4,452 
2021137 129 105 4,168 
2022155 143 2,772 
Total$801 $351 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$16 $40 $69 $78 $78 $78 $77 $78 $79 $79 
20147 30 38 36 38 38 39 39 38 
20157 26 38 40 42 44 42 42 
20165 37 45 45 43 43 41 
201723 37 41 46 49 62 
20185 25 34 39 40 
201912 34 44 59 
20204 20 28 
20215 20 
202212 
Total$421 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$380 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2013(4)
Liability for unallocated claim adjustment expenses for accident years presented20 
Total net liability for unpaid claim and claim adjustment expenses$396 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$1 $(6)$(9)$(15)$(4)$(4)$(1)$— $— $(38)
20141 (30)(25)(9)(15)— (2)(1)(81)
2015— (27)(25)(16)(5)(5)(8)(86)
2016— (15)(25)(17)(3)(6)(66)
2017(5)(12)(19)(13)(5)(54)
2018(6)(17)(29)(6)(58)
2019(7)(14)(11)(32)
2020(9)(38)(47)
2021(8)(8)
Total net development for the accident years presented above(66)(75)(83)
Total net development for accident years prior to 2013(3)2 — 
Total unallocated claim adjustment expense development— — — 
Total$(69)$(73)$(83)
(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)202220212020
Pretax (favorable) unfavorable development:
Commercial Auto$49 $53 $33 
General Liability67 15 15 
Workers' Compensation(152)(82)(96)
Property and Other(7)8 41 
Total pretax (favorable) unfavorable development$(43)$(6)$(7)
2022
Unfavorable development in commercial auto and general liability was due to higher than expected claim severity across multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
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 businesses 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
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)2022
Net Claim and claim adjustment expenses:
Commercial Auto$787 
General Liability3,206 
Workers' Compensation3,739 
Property and Other698 
Total net liability for claim and claim adjustment expenses$8,430 
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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$246 $265 $265 $249 $245 $245 $241 $241 $241 $243 $3 39,431 
2014234 223 212 205 205 201 201 202 201 1 33,631 
2015201 199 190 190 183 181 183 182 3 30,430 
2016198 186 186 186 190 195 200 7 30,452 
2017199 198 200 221 232 239 3 30,947 
2018229 227 227 245 254 5 34,319 
2019257 266 289 323 27 37,237 
2020310 303 304 56 29,070 
2021397 388 153 32,575 
2022437 263 30,229 
Total$2,771 $521 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$74 $135 $168 $200 $225 $234 $238 $239 $239 $239 
201464 102 137 166 187 196 198 199 199 
201552 96 130 153 172 175 178 179 
201652 93 126 154 175 185 190 
201758 107 150 178 203 225 
201866 128 175 212 238 
201977 147 203 257 
202071 134 197 
202183 168 
2022112 
Total$2,004 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$767 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 20134 
Liability for unallocated claim adjustment expenses for accident years presented16 
Total net liability for unpaid claim and claim adjustment expenses$787 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$19 $— $(16)$(4)$— $(4)$— $— $2 $(3)
2014(11)(11)(7)— (4)— 1 (1)(33)
2015(2)(9)— (7)(2)2 (1)(19)
2016(12)— — 4 5 5 2 
2017(1)2 21 11 7 40 
2018(2)— 18 9 25 
20199 23 34 66 
2020(7)1 (6)
2021(9)(9)
Total net development for the accident years presented above32 53 47 
Total net development for accident years prior to 20131 — 2 
Total unallocated claim adjustment expense development— — — 
Total$33 $53 $49 
(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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$650 $655 $650 $655 $613 $623 $620 $623 $624 $629 $32 33,738 
2014653 658 654 631 635 658 659 659 676 34 28,131 
2015581 576 574 589 600 602 617 625 33 24,200 
2016623 659 667 671 673 683 684 43 24,699 
2017632 632 632 634 630 652 32 22,359 
2018653 644 646 639 650 127 20,242 
2019680 682 682 691 227 19,265 
2020723 722 726 434 13,998 
2021782 784 527 13,775 
2022929 835 10,572 
Total$7,046 $2,324 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$31 $128 $240 $352 $450 $510 $551 $572 $582 $586 
201431 119 247 376 481 547 569 607 624 
201519 110 230 357 446 501 530 561 
201632 163 279 407 481 524 582 
201723 118 250 399 471 553 
201833 107 228 307 428 
201925 98 181 322 
202023 99 192 
202126 140 
202229 
Total$4,017 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$3,029 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2013118 
Liability for unallocated claim adjustment expenses for accident years presented59 
Total net liability for unpaid claim and claim adjustment expenses$3,206 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$5 $(5)$5 $(42)$10 $(3)$3 $1 $5 $(21)
20145 (4)(23)4 23 1 — 17 23 
2015(5)(2)15 11 2 15 8 44 
201636 8 4 2 10 1 61 
2017— — 2 (4)22 20 
2018(9)2 (7)11 (3)
20192 — 9 11 
2020(1)4 3 
20212 2 
Total net development for the accident years presented above14 14 79 
Total net development for accident years prior to 20131 (1)(12)
Total unallocated claim adjustment expense development— 2 — 
Total$15 $15 $67 
(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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$537 $572 $592 $618 $593 $582 $561 $552 $548 $537 $82 38,979 
2014467 480 479 452 450 446 439 448 430 76 33,522 
2015422 431 406 408 394 382 372 353 80 31,899 
2016426 405 396 382 366 355 331 77 31,991 
2017440 432 421 400 402 399 81 33,130 
2018450 440 428 415 415 93 34,875 
2019452 449 437 436 105 34,324 
2020477 466 446 182 29,392 
2021468 454 202 29,886 
2022497 308 28,753 
Total$4,298 $1,286 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$80 $213 $300 $370 $417 $419 $411 $414 $417 $423 
201461 159 215 258 282 290 297 306 312 
201551 131 180 212 231 243 251 256 
201653 129 169 198 219 227 234 
201763 151 207 243 265 279 
201868 163 229 259 280 
201971 169 223 262 
202065 147 200 
202167 164 
202279 
Total$2,489 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,809 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 20131,874 
Other (2)
(20)
Liability for unallocated claim adjustment expenses for accident years presented76 
Total net liability for unpaid claim and claim adjustment expenses$3,739 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022Total
Accident Year
2013$35 $20 $26 $(25)$(11)$(21)$(9)$(4)$(11)$— 
201413 (1)(27)(2)(4)(7)9 (18)(37)
20159 (25)2 (14)(12)(10)(19)(69)
2016(21)(9)(14)(16)(11)(24)(95)
2017(8)(11)(21)2 (3)(41)
2018(10)(12)(13)— (35)
2019(3)(12)(1)(16)
2020(11)(20)(31)
2021(14)(14)
Total net development for the accident years presented above(80)(50)(110)
Adjustment for development on a discounted basis2 2 (3)
Total net development for accident years prior to 2013(18)(34)(49)
Total unallocated claim adjustment expense development— — 10 
Total$(96)$(82)$(152)
(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)2022
2021 (1)
2020 (1)
Pretax (favorable) unfavorable development:
Commercial$(10)$(35)$(2)
Specialty(4)36 3 
Other1 1 (3)
Total pretax (favorable) unfavorable development $(13)$2 $(2)
(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.
2022
Favorable development in commercial was due to lower than expected loss emergence across multiple accident years.
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.
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)2022
Net Claim and claim adjustment expenses:
International excluding Hardy$1,441 
Hardy562 
Total net liability for claim and claim adjustment expenses$2,003 
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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$279 $281 $274 $255 $250 $243 $235 $231 $234 $235 $11 23,971 
2014268 283 282 271 264 281 282 273 279 13 24,962 
2015280 295 294 278 273 275 277 277 22 23,372 
2016275 292 279 277 268 281 283 29 17,813 
2017290 351 371 364 359 348 57 18,498 
2018357 374 379 378 390 67 20,849 
2019331 344 341 348 69 18,354 
2020368 360 350 138 14,952 
2021396 385 201 13,580 
2022414 294 8,320 
Total$3,309 $901 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$48 $109 $135 $151 $165 $174 $192 $203 $209 $212 
201450 118 145 162 178 198 230 234 241 
201555 128 158 177 199 213 223 230 
201664 127 153 175 187 208 220 
201763 142 181 209 230 256 
201888 162 208 236 260 
201971 159 195 218 
202058 125 158 
202154 121 
202245 
Total$1,961 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$1,348 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 201356 
Liability for unallocated claim adjustment expenses for accident years presented37 
Total net liability for unpaid claim and claim adjustment expenses$1,441 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Total (2)
Accident Year
2013$2 $(7)$(19)$(5)$(7)$(8)$(4)$3 $1 $(44)
201415 (1)(11)(7)17 1 (9)6 11 
201515 (1)(16)(5)2 2 — (3)
201617 (13)(2)(9)13 2 8 
201761 20 (7)(5)(11)58 
201817 5 (1)12 33 
201913 (3)7 17 
2020(8)(10)(18)
2021(11)(11)
(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 2022 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 102 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, 2022
(In millions, except reported claims data)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022IBNRCumulative Number of Claims
Accident Year
2013$127 $143 $136 $137 $138 $141 $142 $142 $141 $144 $3 7,904 
2014182 180 173 167 168 169 167 165 164 (4)8,530 
2015186 175 174 174 172 174 175 177 (2)9,722 
2016224 240 231 220 222 215 216 3 10,834 
2017240 248 241 242 249 249 5 13,204 
2018264 295 298 303 303 26 15,185 
2019216 219 214 221 37 11,374 
2020206 197 191 62 6,699 
2021174 164 83 3,384 
2022187 136 1,279 
Total$2,016 $349 
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2013(1)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Accident Year
2013$37 $99 $119 $125 $129 $131 $135 $136 $138 $139 
201455 121 139 148 153 159 160 161 162 
201529 96 127 142 153 161 159 168 
201662 143 169 178 191 202 202 
201752 149 181 203 210 222 
201854 170 198 229 246 
201943 101 138 155 
202027 76 102 
202113 43 
202223 
Total$1,462 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented$554 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2013— 
Liability for unallocated claim adjustment expenses for accident years presented8 
Total net liability for unpaid claim and claim adjustment expenses$562 
Net strengthening (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year
(In millions)
2014(1)
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022
Total(2)
Accident Year
2013$16 $(7)$1 $1 $3 $1 $— $(1)$3 $17 
2014(2)(7)(6)1 1 (2)(2)(1)(18)
2015(11)(1)— (2)2 1 2 (9)
201616 (9)(11)2 (7)1 (8)
20178 (7)1 7 — 9 
201831 3 5 — 39 
20193 (5)7 5 
2020(9)(6)(15)
2021(10)(10)
(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 2022 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 102 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, 2022 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 %17.0 %23.0 %18.0 %11.9 %8.2 %4.7 %2.3 %1.0 %0.9 %
Other Professional Liability and Management Liability6.6 %21.0 %20.7 %16.2 %10.3 %6.0 %4.3 %4.8 %1.4 %0.5 %
Surety(1)
19.0 %40.5 %20.2 %3.6 %2.1 %4.8 %(1.7)%0.4 %(0.6)%— %
Commercial
Commercial Auto26.1 %22.0 %17.6 %13.9 %10.4 %4.8 %1.7 %0.5 %— %— %
General Liability3.9 %13.7 %17.1 %18.8 %14.3 %9.4 %5.7 %4.6 %2.1 %0.6 %
Workers' Compensation15.3 %22.3 %13.7 %9.4 %6.1 %2.3 %1.1 %1.4 %1.0 %1.1 %
International
International - Excluding Hardy18.3 %22.5 %10.4 %7.1 %6.0 %6.2 %6.7 %2.9 %2.5 %1.3 %
International - Hardy19.7 %34.0 %13.4 %7.0 %4.4 %3.9 %0.6 %2.1 %1.0 %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.
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)202220212020
Additional amounts ceded under LPT:
Net A&EP adverse development before consideration of LPT$92 $143 $125 
Provision for uncollectible third-party reinsurance on A&EP(5)(5)(25)
Total additional amounts ceded under LPT87 138 100 
Retroactive reinsurance benefit recognized(91)(107)(94)
Pretax impact of deferred retroactive reinsurance$(4)$31 $6 
Net unfavorable prior year development of $92 million, $143 million and $125 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2022, 2021 and 2020. The unfavorable development in 2022, 2021 and 2020 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 2022, 2021 and 2020, the Company released $5 million, $5 million and $25 million of its provision for uncollectible third-party reinsurance.
As of December 31, 2022 and 2021, the cumulative amounts ceded under the LPT were $3.5 billion and $3.4 billion. The unrecognized deferred retroactive reinsurance benefit was $425 million and $429 million as of December 31, 2022 and 2021 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 $2.4 billion as of December 31, 2022. 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, 2022, the cumulative amount ceded under the EWC LPT was $690 million.
Cavello established a collateral trust as security for its obligations to the Company. The fair value of the collateral trust was $608 million as of December 31, 2022.
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's most recent annual claim reserve reviews were completed in the third quarter of 2022. The long term care claim reserve review resulted in a $25 million pretax reduction in reserves driven by a $107 million favorable impact from the release of all remaining IBNR reserves established during 2020 and 2021 in response to the COVID-19 pandemic partially offset by an $82 million unfavorable impact from higher claim severity, including utilization and cost of care inflation, than anticipated in the reserve estimates. The structured settlement claim reserve review resulted in a $5 million pretax reduction in reserves due to discount rate assumption changes. The Company's 2021 annual claim reserve reviews were completed in the third quarter of 2021 resulting in a $40 million pretax reduction in long term care reserves primarily due to lower claim severity than anticipated in the reserve estimates and a $2 million pretax increase 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 made.
The GPV for the long term care future policy benefit reserves, performed in the third quarters of 2022 and 2021, indicated recorded reserves included a pretax margin of approximately $125 million and $72 million as of September 30, 2022 and 2021.