INSURANCE LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of reconciliation of activity in the liability for unpaid claims and claims adjustment expense

The following table presents the roll-forward of activity in Loss Reserves:

	Three Months Ended
	March 31,
(in millions)		2018		2017
Liability for unpaid loss and loss adjustment expenses, beginning of period	$	78,393	$	77,077
Reinsurance recoverable		(26,708)		(15,532)
Net Liability for unpaid loss and loss adjustment expenses, beginning of period		51,685		61,545
Losses and loss adjustment expenses incurred:
Current year		4,698		4,300
Prior years, excluding discount and amortization of deferred gain		(40)		63
Prior years, discount charge (benefit)		(205)		(25)
Prior years, amortization of deferred gain on retroactive reinsurance		(39)		(38)
Total losses and loss adjustment expenses incurred		4,414		4,300
Losses and loss adjustment expenses paid:
Current year		(610)		(571)
Prior years		(4,779)		(4,753)
Total losses and loss adjustment expenses paid		(5,389)		(5,324)
Other changes:
Foreign exchange effect		274		(105)
Retroactive reinsurance adjustment (net of discount)^(a)		(97)		(11,199)
Reclassified to liabilities held for sale^(b)		-		(87)
Total other changes		177		(11,391)
Liability for unpaid loss and loss adjustment expenses, end of period:
Net liability for unpaid losses and loss adjustment expenses		50,887		49,130
Reinsurance recoverable		27,211		26,920
Total	$	78,098	$	76,050

(a) Includes discount on retroactive reinsurance in the amount of $128 million and $1.7 billion for the three-month periods ended March 31, 2018 and 2017, respectively.

(b) Represents change in loss reserves included in our sale of certain of our insurance operations to Fairfax Financial Holdings Limited (Fairfax) for the three-month period ended March 31, 2017. Upon consummation of the sale, we retained a portion of these reserves through reinsurance arrangements.

Schedule of loss reserve discount and loss reserve discount benefit (charge)

The following table presents the components of the loss reserve discount discussed above:

	March 31, 2018						December 31, 2017
	North		Legacy Portfolio				North		Legacy Portfolio
	America		- General				America		- General
	Commercial		Insurance run-off				Commercial		Insurance run-off
(in millions)	Insurance		Insurance Lines			Total	Insurance		Insurance Lines			Total
U.S. workers' compensation	$	2,652	$	936	$	3,588	$	2,465	$	918	$	3,383
Retroactive reinsurance		(1,667)		-		(1,667)		(1,539)		-		(1,539)
Total reserve discount^*	$	985	$	936	$	1,921	$	926	$	918	$	1,844

* Excludes $177 million and $173 million of discount related to certain long tail liabilities in the United Kingdom at March 31, 2018 and December 31, 2017, respectively.

The following tables presents the net loss reserve discount benefit (charge):

Three Months Ended March 31,	2018						2017
	North		Legacy Portfolio				North		Legacy Portfolio
	America		- General				America		- General
	Commercial		Insurance run-off				Commercial		Insurance run-off
(in millions)	Insurance		Insurance Lines			Total	Insurance		Insurance Lines			Total
Current accident year	$	19	$	-	$	19	$	32	$	-	$	32
Accretion and other adjustments
to prior year discount		45		(18)		27		(48)		(16)		(64)
Effect of interest rate changes		123		36		159		39		18		57
Net reserve discount
benefit (charge)		187		18		205		23		2		25
Change in discount on loss reserves
ceded under retroactive reinsurance		(128)		-		(128)		(1,655)		-		(1,655)
Net change in total reserve
discount^(a)	$	59	$	18	$	77	$	(1,632)	$	2	$	(1,630)

(a) Excludes $(5) million and $(1) million of discount related to certain long tail liabilities in the United Kingdom for the three-month periods ended March 31, 2018 and 2017, respectively.

During the first quarters of 2018 and 2017, effective interest rates increased due to an increase in the forward yield curve component of the discount rates reflecting an incline in U.S. Treasury rates along with the changes in payout pattern assumptions. This resulted in an increase in the loss reserve discount by $159 million in first quarter 2018 and $57 million in first quarter 2017.