INSURANCE LIABILITIES

12 Months Ended

Dec. 31, 2020

Insurance Liabilites

INSURANCE LIABILITIES

13. Insurance Liabilities

Liability for Unpaid Losses and Loss Adjustment Expenses (Loss Reserves)

Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income, except to the extent such adjustment impacts a deferred gain under a retroactive reinsurance agreement, in which case the ceded portion would be amortized into pre-tax income in subsequent periods. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed. Given the uncertainties around the impact from the COVID-19 crisis, including the significant global economic slowdown and general market decline, the full impact of COVID-19 and how it may ultimately impact the results of our insurance operations remains uncertain. In addition, in response to the crisis, new governmental, legislative and regulatory initiatives have been put in place and continue to be developed that could result in additional restrictions and requirements relating to our policies that may have a negative impact on our business operations. However, we have recorded our estimate of the ultimate liability for claims that have occurred as of the balance sheet date associated with COVID-19 which reflects our expectations given the current facts and circumstances. We will continue to monitor and review the impact. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development.

Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately $12.6 billion and $12.2 billion at December 31, 2020 and 2019, respectively. These recoverable amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as “deductibles”), primarily for U.S. Commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable amounts represent a credit exposure to us. At December 31, 2020 and 2019, we held collateral of approximately $9.2 billion and $8.9 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements. Allowance for credit losses for the unsecured portion of these recoverable amounts was $14 million at December 31, 2020.

The following table presents the rollforward of activity in Loss Reserves:

Years Ended December 31,
(in millions)		2020		2019		2018
Liability for unpaid loss and loss adjustment expenses, beginning of year	$	78,328	$	83,639	$	78,393
Reinsurance recoverable		(31,069)		(31,690)		(26,708)
Initial allowance upon CECL adoption		164		-		-
Net Liability for unpaid loss and loss adjustment expenses, beginning of year		47,423		51,949		51,685
Losses and loss adjustment expenses incurred:
Current year		16,928		17,596		20,534
Prior years, excluding discount and amortization of deferred gain		(90)		(340)		1,429
Prior years, discount charge (benefit)		587		1,063		(252)
Prior years, amortization of deferred gain on retroactive reinsurance(a)		(237)		(219)		(395)
Total losses and loss adjustment expenses incurred		17,188		18,100		21,316
Losses and loss adjustment expenses paid:
Current year		(4,062)		(4,894)		(5,754)
Prior years		(14,603)		(18,020)		(17,768)
Total losses and loss adjustment expenses paid		(18,665)		(22,914)		(23,522)
Other changes:
Foreign exchange effect		815		(6)		(677)
Allowance for credit losses		(15)		-		-
Acquisitions(b)		-		-		3,284
Retroactive reinsurance adjustment (net of discount)(c)		361		130		(137)
Fortitude sale(d)		(3,818)		-		-
Total other changes		(2,657)		124		2,470
Liability for unpaid loss and loss adjustment expenses, end of year:
Net liability for unpaid losses and loss adjustment expenses		43,289		47,259		51,949
Reinsurance recoverable		34,431		31,069		31,690
Total	$	77,720	$	78,328	$	83,639

(a) Includes $41 million, $27 million and $51 million for the retroactive reinsurance agreement with NICO covering U.S. asbestos exposures for the year ended December 31, 2020, 2019 and 2018, respectively.

(b) Includes amounts related to the acquisition of Glatfelter in October 2018 and Validus in July 2018.

(c) Includes benefit (charge) from change in discount on retroactive reinsurance in the amount of $340 million, $469 million and $(180) million for the periods ended December 31, 2020, 2019 and 2018, respectively.

(d) On June 2, 2020, AIG completed the Majority Interest Fortitude Sale. Concurrent with the Majority Interest Fortitude Sale, AIG established a reinsurance recoverable. Refer to Note 1 for additional information.

Prior Year Development

During 2020, we recognized favorable prior year loss reserve development of $90 million excluding discount and amortization of deferred gain. The development was primarily driven by:

 Favorable development on U.S. Workers’ Compensation business, both guaranteed cost business and large deductible, where we reacted to favorable loss trends in recent accident years;

 Favorable development across the combination of primary and excess casualty coverages;

 Favorable development in Property, Specialty, and other miscellaneous coverages;

 Unfavorable development in U.S. Financial Lines, notably D&O, Employment Practices Liability (EPLI), Mergers and Acquisitions, Cyber and Non-Medical Professional Errors & Omissions business where we reacted to increasing frequency and severity in recent accident years;

 Unfavorable development in Personal Lines where we reacted to adverse development in Homeowners and Umbrella;

 Unfavorable development on Financial Lines driven by low frequency and high severity seen in D&O, especially in UK/Europe and Australia;

 Favorable development on Property and Special Risks globally driven by UK/Europe;

 Favorable development on Europe and Japan Personal Insurance driven by favorable frequency and severity trends.

Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss adjustment expense ratios we selected.

During 2019, we recognized favorable prior year loss reserve development of $340 million excluding discount and amortization of deferred gain. The development was primarily driven by:

 Favorable development on U.S. Workers’ Compensation business, both guaranteed cost business and large deductible and Defense Base Act business (covering government contractors serving at military bases overseas) where we reacted to favorable loss trends in recent accident years;

 Favorable development on 2017 Hurricanes (Harvey, Irma and Maria) and favorable development due to 2017 California wildfire subrogation recoverables in Commercial Property and Personal Lines.

 Unfavorable development in Primary General Liability where we reacted to adverse frequency and severity trends especially in Construction Wrap business in recent accident years.

 Unfavorable development in U.S. Financial Lines, notably D&O, EPLI and Non-Medical Professional Errors & Omissions business where we reacted to increasing frequency and severity in recent accident years.

 Unfavorable development on European Casualty & Financial Lines, notably Commercial Auto, Employers Liability, Directors & Officers, and Financial Institutions business; and

 Favorable development on Europe Property and Special Risks, Europe and Japan Personal Insurance and Other product lines.

Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss adjustment expense ratios we selected.

During 2018, we recognized adverse prior year loss reserve development of $1.4 billion before impact of the Adverse Development Cover and the asbestos cession to NICO. The key components of this development were as follows:

 Unfavorable development in U.S. Excess Casualty, driven by the combination of construction defect and construction wrap claims from accident year 2015 and prior where we reacted to significant increases in severity and longer claim reporting patterns, as well as higher than expected loss severity in accident years 2016 and 2017, which led to an increase in estimates for these accident years;

 Unfavorable development in U.S. Financial Lines, primarily from D&O and EPLI policies covering Corporate and National Insureds as well as Private and Not-for-Profit insureds. This development was predominantly in accident years 2014-2017 and resulted largely from increases in severity associated with an increase in frequency of class action lawsuits from those years.

 Favorable development in U.S. Commercial Property and Specialty Lines due to reductions in our estimates for 2017 Catastrophes, favorable attritional losses in Commercial Property and favorable Specialty emergence.

 Unfavorable development in U.S. Personal Lines reflecting the adverse development on the 2017 California wildfires and Hurricane Irma in 2017.

 Unfavorable development in International Financial Lines driven by increased large loss activity in recent accident years, particularly related to directors and officers class action suits against insureds with global exposure.

Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss adjustment expense ratios we selected.

The table below presents the reconciliation of the net liability for unpaid losses and loss adjustment expenses in the following tables to Loss Reserves in the Consolidated Balance Sheets for the year ended December 31, 2020:

	Net liability for unpaid losses		Reinsurance recoverable on		Gross liability
	and loss adjustment expenses		unpaid losses and loss		for unpaid
	as presented in the		adjustment expenses included in		losses and loss
(in millions)	disaggregated tables below		the disaggregated tables below		adjustment expenses
U.S. Workers' Compensation (before discount)	$	4,630	$	6,564	$	11,194
U.S. Excess Casualty		3,746		4,584		8,330
U.S. Other Casualty		3,520		4,568		8,088
U.S. Financial Lines		4,838		2,193		7,031
U.S. Property and Special Risks		6,181		2,571		8,752
U.S. Personal Insurance		1,116		1,626		2,742
UK/Europe Casualty and Financial lines		6,826		1,225		8,051
UK/Europe Property and Special Risks		2,679		1,215		3,894
UK/Europe and Japan Personal Insurance		2,219		505		2,724
Total	$	35,755	$	25,051	$	60,806
Reconciling Items
Discount on workers' compensation lines						(1,636)
Other product lines*						15,776
Unallocated loss adjustment expenses						2,774
Total Loss Reserves					$	77,720

*Reinsurance recoverable for other product lines of $9.1 billion resulted in a net liability for unpaid losses and loss adjustment expenses of $6.7 billion for the year ended December 31, 2020.

Loss Development Information

The following is information about incurred and paid loss developments as of December 31, 2020, net of reinsurance. The cumulative number of reported claims, the total of IBNR liabilities and expected development on reported loss included within the net incurred loss amounts are presented in the following section.

Reserving Methodology

We use a combination of methods to project ultimate losses for both long-tail and short-tail exposures, which include:

 Paid Development method: The Paid Development method estimates ultimate losses by reviewing paid loss patterns and selecting paid ultimate loss development factors. These factors are then applied to paid losses by applying them to accident years, with further expected changes in paid loss. Since the method does not rely on case reserves, it is not directly influenced by changes in the adequacy of case reserves.

 Incurred Development method: The Incurred Development method is similar to the Paid Development method, but it uses case incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid Development method, the incurred development patterns may be less variable than paid development patterns.

 Expected Loss Ratio method: The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses emerge very slowly, or there is relatively little loss history from which to estimate future losses.

 Bornhuetter-Ferguson method: The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid Development method and the Expected Loss Ratio method where the weight given to each method is the reciprocal of the loss development factor. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio method. The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method using premiums and paid losses except that it uses case-incurred losses.

 Cape Cod method: The Cape Cod method is mechanically similar to the Bornhuetter-Ferguson method with the difference being that the Expected Loss Ratio estimates are determined based on a weighting of the loss estimates that come from the Paid/Incurred Development Methods. This method may be more responsive to recent loss trends than the Bornhuetter-Ferguson method.

 Average Loss method: The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate severity average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively.

In updating our loss reserve estimates, we consider and evaluate inputs from many sources, including actual claims data, the performance of prior reserve estimates, observed industry trends, our internal peer review processes, including challenges and recommendations from our Enterprise Risk Management group, as well as the views of third-party actuarial firms. We use these inputs to improve our evaluation techniques, and to analyze and assess the change in estimated ultimate loss for each accident year by product line. Our analyses produce a range of indications from various methods, from which we select our best estimate.

In determining the actual carried loss reserves, we consider both the internal actuarial best estimate and numerous other internal and external factors, including:

 an assessment of economic conditions, including real GDP growth, inflation, employment rates or unemployment duration, stock market volatility and changes in corporate bond spreads;

 changes in the legal, regulatory, judicial and social environment, including changes in road safety, public health and cleanup standards;

 changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;

 underlying policy pricing, terms and conditions including attachment points and policy limits;

 change in claims handling philosophy, operating model, processes, and related ongoing enhancements;

 third-party claims reviews that are periodically performed for key classes of claims such as toxic tort, environmental and other complex casualty claims;

 third-party actuarial reviews that are periodically performed for key classes of business;

 input from underwriters on pricing, terms, and conditions and market trends; and

 changes in our reinsurance program, pricing and commutations.

The following factors are relevant to the loss development information included in the tables below:

 Table organization: The tables are organized by accident year and include policies written on an occurrence and claims- made basis. We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of occurrence becomes available to us. These reclassifications are shown as development in the respective years in the tables below. Financial Lines business is primarily written on a claims-made basis, while the majority of the workers’ compensation, excess casualty, other casualty, and run-off property and casualty lines of business are written on an occurrence basis. Primarily, all short-tail lines in Property and Special Risks and Personal Insurance are written on an occurrence basis.

 Groupings: We believe our groupings have homogenous risk characteristics with similar development patterns and would generally be subject to similar trends and reflect our reportable segments. The incurred losses and loss adjustment expenses and paid losses in the following tables for the current reporting year are allocated to the line of business and accident years based on how the business is coded by profit center and line of business.

 Reinsurance: Our reinsurance program varies by exposure type. Historically we have leveraged facultative and treaty reinsurance, both on a pro-rata and excess of loss basis. Our reinsurance program may change from year to year, which may affect the comparability of the data presented in our tables.

 Adverse Development Reinsurance Agreement: We have provided the impact of the adverse development reinsurance agreement (ADC) in an additional table below our Incurred Losses and Allocated Loss Adjustment Expenses (ALAE) tables. The impact of the ADC is shown beginning in 2016 given the retroactive date of the contract and coincides with the effective date of the contract. For the lines of business covered by the agreement (U.S. Workers' Compensation, U.S. Excess Casualty, U.S. Other Casualty, U.S. Financial Lines, U.S. Property and Special Risks and U.S. Personal Insurance or collectively, the Covered Lines), an attribution of the loss recoveries to the line of business by calendar year and accident year is performed based on the underlying distribution of the losses subject to the agreement. Specifically, the future claim payments for all subject incurred losses were projected into future years based on the same actuarial assumptions underlying the related reserves. The additional table presented after discussion of prior year development by line of business reconciles the changes in net ultimates to our overall prior year development and provides the reattribution of loss recoveries for the Covered Lines. The reinsurance terms of the ADC were then used to identify the future claims payments for which 80% will be reimbursed by NICO. At each reporting period, the attribution of the ADC recoveries is performed. The factors that could cause the attribution to lines of business and accident year to change include changes in underlying actuarial assumptions as to timing and amount of future claim payments.

 Incurred but not reported liabilities (IBNR): We include development from past reported losses in IBNR.

 Data excluded from tables: Information with respect to accident years older than ten years is excluded from the development tables. Unallocated loss adjustment expenses are also excluded.

 Foreign exchange: The loss development for operations outside of the U.S. is presented for all accident years using the current exchange rate at December 31, 2020. Although this approach requires restating all prior accident year information, the changes in exchange rates do not impact incurred and paid loss development trends.

 Acquisitions: We include acquisitions from all accident years presented in the tables. For purposes of this disclosure, we have applied the retrospective method for the acquired reserves, including incurred and paid claim development histories throughout the relevant tables. It should be noted that historical reserves for the acquired businesses were established by the acquired companies using methods, assumptions and procedures then in effect which may differ from our current reserving bases. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on the aggregated historical results shown in the triangles.

 Dispositions: We exclude dispositions from all accident years presented in the tables.

 Claim counts: We consider a reported claim to be one claim for each claimant or feature for each loss occurrence. Claims relating to losses that are 100 percent reinsured are excluded from the reported claims in the tables below. Reported claims for losses from assumed reinsurance contracts are not available and hence not included in the reported claims.

 There are limitations that should be considered on the reported claim count data in the tables below, including:

- Claim counts are presented only on a reported (not an ultimate) basis;

- The tables below include lines of business and geographies at a certain aggregated level which may indicate different frequency and severity trends and characteristics, and may not be as meaningful as the claim count information related to the individual products within those lines of business and geographies;

- Certain lines of business are more likely to be subject to occurrences involving multiple claimants and features, which can distort measures based on the reported claim counts in the table below; and

- Reported claim counts are not adjusted for ceded reinsurance, which may distort the measure of frequency or severity.

Supplemental Information: The information about incurred and paid loss development for all periods preceding year ended December 31, 2020 and the related historical claims payout percentage disclosure is unaudited and is presented as supplementary information.

The following tables present undiscounted, incurred and paid losses and allocated loss adjustment expenses by accident year, on a net basis after reinsurance, with a separate presentation of the Adverse Development Reinsurance Agreement excluding the related amortization of the deferred gain:

U.S. Workers' Compensation

During 2020, we recognized $367 million of favorable prior year development, net of external reinsurance but before ADC cessions.

During 2019, we recognized $699 million of favorable prior year development, net of external reinsurance but before ADC cessions.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	2,901	$	2,953	$	3,091	$	3,158	$	3,113	$	3,152	$	3,156	$	3,177	$	3,141	$	3,105	$	(36)	$	299	125,646	$	(439)	$	(269)	$	2,666	$	30
2012				2,382		2,194		2,286		2,260		2,334		2,308		2,259		2,247		2,224		(23)		260	71,570		(398)		(236)		1,826		24
2013						1,932		1,880		1,950		2,060		2,032		1,974		1,916		1,886		(30)		226	47,620		(366)		(196)		1,520		30
2014								1,729		1,764		1,866		1,862		1,794		1,709		1,679		(30)		323	40,430		(456)		(276)		1,223		47
2015										1,708		1,864		1,866		1,814		1,722		1,675		(47)		479	36,231		(570)		(380)		1,105		99
2016												1,299		1,346		1,318		1,140		1,090		(50)		329	31,104		-		-		1,090		329
2017														789		850		776		763		(13)		306	26,914		-		-		763		306
2018																998		1,021		961		(60)		514	21,481		-		-		961		514
2019																		887		873		(14)		478	16,094		-		-		873		478
2020																				597				409	11,493		-		-		597		409
Total																			$	14,853	$	(303)				$	(2,229)			$	12,624
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(9,268)		-					14				(9,254)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				4,714		(87)					(3,454)				1,260
Unallocated loss adjustment expense prior year development																						23
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	10,299	$	(367)				$	(5,669)			$	4,630

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	2,676	$	2,677	$	2,682	$	2,683	$	2,666	$	(17)
2012		1,819		1,814		1,793		1,804		1,826		22
2013		1,500		1,494		1,481		1,458		1,520		62
2014		1,311		1,310		1,309		1,329		1,223		(106)
2015		1,279		1,279		1,318		1,134		1,105		(29)
2016		1,299		1,346		1,318		1,140		1,090		(50)
2017		-		789		850		776		763		(13)
2018		-		-		998		1,021		961		(60)
2019		-		-		-		887		873		(14)
2020		-		-		-		-		597		-
Total	$	9,884	$	10,709	$	11,749	$	12,232	$	12,624	$	(205)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(9,254)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										1,260		(137)
Unallocated loss adjustment expense prior year development										-		20
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	4,630	$	(322)

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	(476)	$	(479)	$	(495)	$	(458)	$	(439)	$	19
2012		(515)		(494)		(466)		(443)		(398)		45
2013		(560)		(538)		(493)		(458)		(366)		92
2014		(555)		(552)		(485)		(380)		(456)		(76)
2015		(585)		(587)		(496)		(588)		(570)		18
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(2,692)	$	(2,650)	$	(2,435)	$	(2,327)	$	(2,229)	$	98
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										14		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(3,454)		(46)
Unallocated loss adjustment expense prior year development												(3)
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(5,669)	$	49

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	519	$	1,129	$	1,561	$	1,884	$	2,129	$	2,285	$	2,388	$	2,451	$	2,496	$	2,519	$	(2)
2012				415		804		1,089		1,272		1,440		1,563		1,632		1,669		1,719		(3)
2013						282		619		879		1,067		1,214		1,287		1,335		1,372		(3)
2014								231		558		786		930		1,030		1,096		1,137		(3)
2015										234		524		725		854		925		979		(3)
2016												147		378		521		584		630		-
2017														93		224		294		333		-
2018																85		215		296		-
2019																		93		219		-
2020																				64		-
Total																			$	9,268	$	(14)

Reserving Process and Methodology

U.S. Workers’ Compensation is an extremely long-tail line of business, with loss emergence extending for decades. We generally use a combination of loss development, frequency/severity and expected loss ratio methods for workers’ compensation.

Many of our primary casualty policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple products, years and structures, and are subject to amendment over time. We group guaranteed cost and excess of deductible business separately and then further by state and industry subset to the extent that meaningful differences are determined to exist. We also separately analyze certain subsets of the portfolio that have unique characteristics (e.g., U.S. government sub-contractor accounts and construction wrap-up business). For excess of deductible business, we also segment by size of deductible and whether the claim is handled by AIG or an outside third-party administrator (TPA). The proportion of large deductible business has increased over time, which has slowed the reporting pattern of claims.

For guaranteed cost business, expected loss ratio methods generally are given significant weight only in the most recent accident year. Workers’ compensation claims are generally characterized by high frequency, low severity, and relatively consistent loss development from one accident year to the next. We historically have been a leading writer of workers’ compensation, and thus have sufficient volume of claims experience to use development methods. We generally segregate California (CA) and New York (NY) businesses from the other states to reflect their different development patterns and changing percentage of the mix by state. The claims development tables above are impacted by two other significant initiatives, which offset each other. In recent years, we instituted claims strategy changes and loss mitigation efforts to accelerate settlements, which we believe results in an overall reduction in claim costs. This strategy resulted in an increase in paid losses along the latest diagonals relative to prior years. In addition, we have been reducing premium volume in recent years and shifting a greater proportion of business to insured risk retention structures such as high deductible policies. These mix and volume changes slowed paid and incurred development since excess of deductible claims will typically take longer to emerge and settle.

Expected loss ratio methods for business written in excess of a deductible may be given significant weight in the most recent five accident years. In the 2016 analysis, we increased our tail factor estimates for states other than NY and CA for guaranteed cost business in recognition of longer medical development patterns that we have been seeing in recent years. We reflected increases in legal costs we have seen across the portfolio, particularly in California.

Additionally, over the years we have written a number of very large accounts which include workers’ compensation coverage. These accounts are generally individually priced by our actuaries, and to the extent appropriate, the indicated losses based on the pricing analysis may be used to record the initial estimated loss reserves for these accounts.

Prior Year Development

During 2020, we recognized $367 million of favorable prior year development in U.S. Workers Compensation business due to continued favorable frequency and severity trends seen across the diagonals for many subsets of US Workers Compensation especially for recent accident years.

During 2019, we recognized $699 million of favorable prior year development in U.S. Workers Compensation business due to favorable frequency and severity trends seen across the diagonals across many subsets of U.S. Workers Compensation especially in the recent accident years.

During 2018, we recognized $51 million of adverse prior year development in U.S. Workers Compensation business with higher claim development factors at older ages (tail factors) for non-California, non-New York and loss sensitive business in older accident years being offset by favorable emergence in recent years. Accident year 2017 was adversely impacted by a change in ceded reinsurance estimates. For our Defense Base Act business, adverse development in recent years was offset by an expansion of the definition of reimbursable War Hazard claims by the U.S. Government.

U.S. Excess Casualty

During 2020, we recognized $149 million of favorable prior year development in Excess Casualty, net of external reinsurance but before ADC cessions, driven by favorable emergence on older accident years offset by severity increases in recent accident years.

During 2019, we recognized $76 million of unfavorable prior year development in Excess Casualty, net of external reinsurance but before ADC cessions, driven by higher than expected loss emergence for construction wrap claims and increasing loss severity in more recent accident years.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	1,787	$	1,827	$	1,597	$	1,429	$	1,529	$	1,611	$	1,627	$	1,726	$	1,758	$	1,713	$	(45)	$	312	3,816	$	(279)	$	(163)	$	1,434	$	149
2012				1,607		1,403		1,242		1,488		1,537		1,486		1,558		1,502		1,390		(112)		236	3,783		(253)		(146)		1,137		90
2013						1,123		1,035		1,169		1,308		1,241		1,282		1,292		1,316		24		283	3,171		(346)		(197)		970		86
2014								938		1,069		1,275		1,260		1,339		1,283		1,248		(35)		348	2,669		(336)		(187)		912		161
2015										989		1,463		1,440		1,603		1,656		1,694		38		423	2,672		(483)		(270)		1,211		153
2016												898		1,146		1,162		1,171		1,274		103		526	2,172		-		-		1,274		526
2017														856		1,002		1,097		1,153		56		491	1,465		-		-		1,153		491
2018																648		646		721		75		368	865		-		-		721		368
2019																		577		583		6		477	615		-		-		583		477
2020																				406				399	320		-		-		406		399
Total																			$	11,498	$	110				$	(1,697)			$	9,801
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(6,459)		-					20				(6,439)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				2,110		(237)					(1,726)				384
Unallocated loss adjustment expense prior year development																						(22)
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	7,149	$	(149)				$	(3,403)			$	3,746

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
			Unaudited
2011	$	1,369	$	1,371	$	1,436	$	1,416	$	1,434	$	18
2012		1,175		1,163		1,254		1,214		1,137		(77)
2013		935		932		981		1,032		970		(62)
2014		902		905		915		844		912		68
2015		1,027		1,015		1,139		1,163		1,211		48
2016		898		1,146		1,162		1,171		1,274		103
2017		-		856		1,002		1,097		1,153		56
2018		-		-		648		646		721		75
2019		-		-		-		577		583		6
2020		-		-		-		-		406		-
Total	$	6,306	$	7,388	$	8,537	$	9,160	$	9,801	$	235
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(6,439)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										384		4
Unallocated loss adjustment expense prior year development										-		(33)
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	3,746	$	206

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
			Unaudited
2011	$	(242)	$	(256)	$	(290)	$	(342)	$	(279)	$	63
2012		(362)		(323)		(304)		(288)		(253)		35
2013		(373)		(309)		(301)		(260)		(346)		(86)
2014		(373)		(355)		(424)		(439)		(336)		103
2015		(436)		(425)		(464)		(493)		(483)		10
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(1,786)	$	(1,668)	$	(1,783)	$	(1,822)	$	(1,697)	$	125
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										20		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(1,726)		231
Unallocated loss adjustment expense prior year development												(11)
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(3,403)	$	345

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	5	$	63	$	225	$	387	$	716	$	921	$	1,069	$	1,214	$	1,257	$	1,330	$	(3)
2012				3		106		288		495		649		887		1,022		1,121		1,090		-
2013						15		105		207		387		578		705		819		882		(4)
2014								3		77		240		444		590		703		815		(6)
2015										9		210		391		718		935		1,061		(7)
2016												28		80		204		388		502		-
2017														1		45		156		505		-
2018																1		125		227		-
2019																		7		43		-
2020																				4		-
Total																			$	6,459	$	(20)

Reserving Process and Methodology

U.S. Excess Casualty policies tend to attach at a high layer above underlying policies, which causes the loss development pattern to be lagged significantly. Many of the claims notified to the excess layers are closed without payment because the claims never reach our layer as a result of high deductibles and other underlying coverages, while the claims that reach our layer and close with payment can be large and highly variable in terms of reported timing and amount. For a portion of this business, the underlying primary policies are issued by other insurance companies, which can limit our access to relevant information to help inform our judgments as the loss events evolve and mature.

We generally use a combination of loss development methods and expected loss ratio methods for excess casualty product lines. We segment our analysis between automobile-related claims and non-automobile claims, due to the shorter-tail nature of the automobile claims. We then further segment the non-automobile claims for certain latent exposures such as construction defects and mass torts where losses have unique emergence patterns. Mass tort claims in particular may develop over an extended period of time and impact multiple accident years when they emerge. The more standard types of claims are then separately analyzed based on attachment point bands, to recognize that the impact of the level of the attachment point can significantly impact the delay in loss reporting and development. In our analyses, losses capped at $10 million were first analyzed using traditional loss development and expected loss ratio methods and then this estimate was used to derive the expected loss estimate for losses above $10 million reflecting the expected relationships between the layers, reflecting the attachment point and limit.

Expected loss ratio methods are generally used for at least the three latest accident years, due to the relatively low credibility of the reported losses. The loss experience is generally reviewed separately by attachment point. The expected loss ratios used for recent accident years are based on the projected ultimate loss ratios for older years adjusted for rate changes and loss trend.

Prior Year Development

During 2020, we recognized $149 million of favorable development driven by favorable emergence on the older years offset by higher severity claim emergence in recent accident years across various excess casualty classes. Auto liability deteriorated slightly in the more recent accident years.

During 2019, we recognized $76 million of unfavorable development driven by higher severity claim emergence in non-admitted construction defect claims in older accident years and auto liability and general liability claims in recent accident years.

During 2018, we recognized $1.3 billion of adverse development driven largely by construction defect and construction wrap claims where actual emergence was significantly worse than expected and our updated analysis significantly increased the severity assumptions and lengthened the claim reporting pattern to recognize the significant deterioration seen in recent calendar periods. We also increased the expected loss ratio assumptions in recent accident years to reflect the high initial reported loss ratios for those years and the incidence of several unusually large claims.

U.S. Other Casualty

U.S Other Casualty includes general liability, commercial auto, medical malpractice, and various other casualty lines of business.

In 2020, we recognized $141 million of favorable prior year development in Other Casualty, net of external reinsurance but before ADC cessions.

In 2019, we recognized $168 million of unfavorable prior year development in Other Casualty, net of external reinsurance but before ADC cessions, primarily as a result of unfavorable loss emergence in recent accident years.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	2,033	$	2,202	$	2,302	$	2,439	$	2,585	$	2,620	$	2,582	$	2,517	$	2,515	$	2,524	$	9	$	94	75,604	$	(138)	$	(92)	$	2,386	$	2
2012				1,986		2,139		2,193		2,203		2,352		2,407		2,343		2,328		2,321		(7)		135	44,071		(186)		(131)		2,135		4
2013						1,653		1,729		1,912		2,148		2,185		2,164		2,211		2,196		(15)		217	39,140		(276)		(208)		1,920		9
2014								1,751		1,721		1,963		2,009		1,910		1,916		1,946		30		181	37,598		(245)		(164)		1,701		17
2015										1,329		1,762		1,829		1,736		1,794		1,834		40		171	34,918		(281)		(155)		1,553		16
2016												1,339		1,343		1,321		1,391		1,340		(51)		327	28,356		-		-		1,340		327
2017														602		629		738		674		(64)		211	20,389		-		-		674		211
2018																802		845		837		(8)		426	15,626		-		-		837		426
2019																		1,059		1,058		(1)		799	18,716		-		-		1,058		799
2020																				524				457	7,552		-		-		524		457
Total																			$	15,254	$	(67)				$	(1,126)			$	14,128
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(11,056)		-					24				(11,032)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				1,476		(40)					(1,052)				424
Unallocated loss adjustment expense prior year development																						(34)
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	5,674	$	(141)				$	(2,154)			$	3,520

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
			Unaudited
2011	$	2,398	$	2,395	$	2,414	$	2,376	$	2,386	$	10
2012		2,189		2,197		2,175		2,159		2,135		(24)
2013		1,948		1,960		1,929		1,948		1,920		(28)
2014		1,667		1,678		1,634		1,694		1,701		7
2015		1,361		1,373		1,423		1,493		1,553		60
2016		1,339		1,343		1,321		1,391		1,340		(51)
2017		-		602		629		738		674		(64)
2018		-		-		802		845		837		(8)
2019		-		-		-		1,059		1,058		(1)
2020		-		-		-		-		524		-
Total	$	10,902	$	11,548	$	12,327	$	13,703	$	14,128	$	(99)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(11,032)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										424		(24)
Unallocated loss adjustment expense prior year development										-		(32)
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	3,520	$	(155)

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
			Unaudited
2011	$	(222)	$	(187)	$	(103)	$	(139)	$	(138)	$	1
2012		(163)		(210)		(168)		(169)		(186)		(17)
2013		(200)		(225)		(235)		(263)		(276)		(13)
2014		(296)		(331)		(276)		(222)		(245)		(23)
2015		(401)		(456)		(313)		(301)		(281)		20
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(1,282)	$	(1,409)	$	(1,095)	$	(1,094)	$	(1,126)	$	(32)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										24		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(1,052)		30
Unallocated loss adjustment expense prior year development												2
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(2,154)	$	-

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	235	$	722	$	1,102	$	1,481	$	1,814	$	2,039	$	2,210	$	2,289	$	2,339	$	2,381	$	(4)
2012				411		739		1,042		1,385		1,677		1,869		2,009		2,053		2,101		(3)
2013						169		594		962		1,248		1,485		1,688		1,809		1,885		(4)
2014								210		620		868		1,150		1,392		1,572		1,653		(5)
2015										105		309		769		1,087		1,351		1,485		(8)
2016												77		298		489		703		846		-
2017														51		111		216		314		-
2018																43		122		227		-
2019																		53		138		-
2020																				26		-
Total																			$	11,056	$	(24)

Reserving Process and Methodology

U.S. Other Casualty includes general liability, automobile liability, environmental, medical malpractice, and other casualty lines of business. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often subject to similar trends. These lines are often significantly impacted by the underwriting cycle and external judicial trends. Many of our policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple products, years and structures, and are subject to amendment over time.

We generally use a combination of loss development methods, frequency/severity and expected loss ratio methods for primary general liability or products liability product lines. We also supplement the standard actuarial techniques by using evaluations of the ultimate losses on unusual claims or claim accumulations by external specialists on those subsets of claims. The segmentation of the data reflects state differences, industry groups, deductible/non-deductible programs and type of claim.

We segment our analysis by line of business and key coverage structures (claims-made vs. occurrence, large deductible policies, retrospective-rated policies, captives, etc.). Additionally, certain subsets, such as construction defect for general liability, auto liability policies for trucking business, hospital policies for medical malpractice and underground storage tanks for environmental are generally reviewed separately from business in other subsets. We continually refine our loss reserving techniques for the domestic primary casualty product lines and adopt further segmentations based on our analysis of the differing emerging loss patterns for certain subsets of insureds. Due to the long-tail nature of general liability business, and the many subsets that are reviewed individually, there is less credibility given to the reported losses and increased reliance on expected loss ratio methods for recent accident years.

For certain product lines with sufficient loss volume, loss development methods may be given significant weight for all but the most recent one or two accident years. For smaller or more volatile subsets of business and excess of a large deductible business, loss development methods may be given limited weight for the five or more recent accident years. Expected loss ratio methods are used for the more recent accident years for these subsets. The loss experience for primary general liability business is generally reviewed at a level that is believed to provide the most appropriate data for reserve analysis. For other subsets, such as environmental, we utilize a combination of claim analysts’ loss projections and actuarial methods to estimate ultimate losses.

Expected loss ratio methods are generally given significant weight only in the most recent accident year, except for excess of large deductible business, in which expected loss ratio methods may receive weight for several of the most recent accident years. In recent years, the impact of the increase in the frequency of severe claims was projected in the accident years where it was most prevalent. The resulting increase in ultimate loss projections and loss ratios for those years impacted subsequent years through loss development factors and prior expected loss ratio assumptions.

Prior Year Development

Primary General Liability

In 2020, we recognized unfavorable development of $65 million largely driven by non-admitted casualty claims emerging in the last seven accident years.

In 2019, we recognized unfavorable development of $220 million largely driven by construction defect and construction wrap policies where we observed significant increases in severity in recent accident years.

In 2018, we increased our ultimate loss estimates for prior accident years by $214 million mainly due to Construction Casualty business, particularly construction defect (CD) claims. Our updated analyses for the construction casualty business reacted to increased severity of claims for both CD and non-CD claims and lengthened the claim reporting pattern for CD claims.

Primary Commercial Auto Liability

In 2020, we experienced unfavorable development of approximately $11 million mainly due to continued emergence of high severity claims in recent accident years.

In 2019, we experienced unfavorable development of approximately $23 million mainly due to deterioration in severity in the recent accident years in the large deductible business.

In 2018, we reduced our ultimate loss estimates for prior accident years by $142 million mainly due to favorable emergence in recent accident years. Our updated analyses for the auto business reacted to this experience in older years as loss trends have stabilized in the more recent years.

Medical Malpractice

During 2020, we recognized $26 million of favorable development largely driven by favorable trends in large claim emergence.

During 2019, we recognized $30 million of unfavorable development largely driven by a few large cases.

During 2018, we recognized favorable loss development of approximately $158 million as loss emergence was less than expected in older years due to several large cases settling for less than we expected. Severity in recent years continues to be higher than historical norms.

Other Lines

During 2020, we recognized favorable development of $191 million largely driven by favorable development on extra-contractual obligations, environmental impairment business and loss sensitive casualty business.

During 2019, we recognized favorable development of $105 million largely driven by extra contractual obligations, favorable development on loss sensitive casualty business and business internally reinsured from other business units.

During 2018, we recognized favorable loss development of approximately $41 million largely due to our environmental impairment liability business where loss activity was better than expected.

U.S. Financial Lines

During 2020, we recognized $479 million of unfavorable prior year development in U.S. Financial Lines, net of external reinsurance but before ADC cessions, due to adverse experience driven by severity.

During 2019, we recognized $463 million of unfavorable prior year development in U.S. Financial Lines, net of external reinsurance but before ADC cessions, due to adverse experience in the D&O subset of business.

The mix of business has been changing in recent years as we write more cyber and mergers and acquisitions business, which generally report claims faster.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	1,844	$	1,765	$	1,934	$	1,925	$	1,960	$	1,991	$	2,023	$	2,015	$	2,012	$	2,004	$	(8)	$	31	20,074	$	(59)	$	(29)	$	1,945	$	2
2012				1,592		1,763		1,800		1,907		1,988		1,990		2,015		2,077		2,082		5		86	20,086		(134)		(75)		1,948		11
2013						1,790		1,719		1,670		1,613		1,555		1,497		1,509		1,550		41		87	19,003		(148)		(83)		1,402		4
2014								1,812		1,777		1,892		1,927		1,960		1,981		2,000		19		203	17,280		(241)		(140)		1,759		63
2015										1,737		1,762		1,743		1,788		1,830		1,874		44		192	15,857		(324)		(176)		1,550		16
2016												1,605		1,855		1,993		2,064		2,139		75		263	15,778		-		-		2,139		263
2017														1,564		1,675		1,756		1,846		90		418	14,950		-		-		1,846		418
2018																1,640		1,766		1,882		116		760	14,357		-		-		1,882		760
2019																		1,503		1,536		33		915	12,663		-		-		1,536		915
2020																				1,213				1,016	9,220		-		-		1,213		1,016
Total																			$	18,126	$	415				$	(906)			$	17,220
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(12,399)		-					27				(12,372)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				203		25					(213)				(10)
Unallocated loss adjustment expense prior year development																						39
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	5,930	$	479				$	(1,092)			$	4,838

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	1,966	$	1,973	$	1,989	$	1,958	$	1,945	$	(13)
2012		1,906		1,907		1,925		1,962		1,948		(14)
2013		1,442		1,429		1,408		1,409		1,402		(7)
2014		1,733		1,729		1,753		1,741		1,759		18
2015		1,429		1,430		1,462		1,552		1,550		(2)
2016		1,605		1,855		1,993		2,064		2,139		75
2017		-		1,564		1,675		1,756		1,846		90
2018		-		-		1,640		1,766		1,882		116
2019		-		-		-		1,503		1,536		33
2020		-		-		-		-		1,213		-
Total	$	10,081	$	11,887	$	13,845	$	15,711	$	17,220	$	296
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(12,372)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(10)		(25)
Unallocated loss adjustment expense prior year development										-		47
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	4,838	$	318

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	(25)	$	(50)	$	(26)	$	(54)	$	(59)	$	(5)
2012		(82)		(83)		(90)		(115)		(134)		(19)
2013		(171)		(126)		(89)		(100)		(148)		(48)
2014		(159)		(198)		(207)		(240)		(241)		(1)
2015		(333)		(313)		(326)		(278)		(324)		(46)
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(770)	$	(770)	$	(738)	$	(787)	$	(906)	$	(119)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										27		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(213)		(23)
Unallocated loss adjustment expense prior year development												8
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(1,092)	$	(134)

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	165	$	494	$	886	$	1,210	$	1,529	$	1,752	$	1,885	$	1,912	$	1,918	$	1,924	$	(1)
2012				73		403		812		1,250		1,494		1,622		1,687		1,859		1,904		(3)
2013						41		327		682		945		1,139		1,235		1,314		1,362		(3)
2014								66		366		849		1,158		1,387		1,573		1,658		(6)
2015										63		390		791		1,055		1,282		1,488		(14)
2016												73		499		1,002		1,358		1,659		-
2017														64		391		761		1,118		-
2018																86		486		835		-
2019																		94		367		-
2020																				84		-
Total																			$	12,399	$	(27)

Reserving Process and Methodology

U.S. Financial Lines business includes D&O, Errors and Omissions (E&O), EPLI policies and various professional liability subsets of business, as well as the fidelity book of business. This includes cyber coverage and mergers and acquisitions coverage, which have been a growing and evolving portion of this portfolio. These product lines are predominantly claims-made in nature, losses are characterized by low frequency and high severity, and results are often significantly impacted by external economic conditions.

Our analysis is segmented by major coverages, such as D&O, E&O, etc. and then further segmented by major industry groups (e.g. corporate accounts, national accounts, financial institutions, private/not-for-profit, etc.). We also separately review primary business from excess business for certain product lines.

We use a combination of loss development, expected loss ratio, and frequency/severity methods for D&O, E&O, EPLI, and professional liability. These product lines generally are offered on a claims-made basis and losses are characterized by low frequency and high severity. In general, expected loss ratio methods are given more weight in the more recent accident years and loss development methods are given more weight in more mature accident years. The loss development factors for the different segments differ significantly in some cases, based on specific coverage characteristics and other factors such as industry group, attachment points, and limits offered. Individual claims projections for certain claims from accident years ended over eighteen months prior are also used in the analysis.

Frequency/severity methods are generally not used in isolation for these product lines as the overall losses are driven by large losses more than by claim frequency. For commercial D&O segments though, we reflect claims dismissal rates in our frequency estimates as claims severity varies directly with claims jurisprudence. Severity trends have varied significantly from accident year to accident year and care is required in analyzing these trends by claim type. In view of the changing severity profile of the book, we use a capped and excess layer approach on many segments to better reflect the potential impact of large claims on the results by accident year.

We generally use loss development methods for fidelity exposures for all but the latest accident year. For mergers and acquisitions exposure, given the unique profile of each transaction, we use claim department estimates of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years.

For surety exposures, we generally use the same method as for short-tail classes whereby frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves.

Expected loss ratio methods are also given weight for the more recent accident years. IBNR factor methods are used, when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

Prior Year Development

During 2020, we recognized $479 million of unfavorable development driven by loss severity emergence in recent accident years in our D&O business especially National and Private and Not For Profit segments, adverse loss emergence and loss trends in EPLI and adverse claim activity in E&O (including Architects and Engineers), Cyber and Mergers and Acquisitions segments.

During 2019, we recognized $463 million of unfavorable development particularly across accident years 2015-2018 driven by increasing severity across most D&O and EPLI classes and M&A policies. We also experienced unfavorable development in E&O due to adverse frequency and severity trends.

During 2018, we recognized $298 million of unfavorable prior year development particularly across accident years 2014-2017. The largest share of the unfavorable development came from D&O and EPLI for Corporate and National accounts and resulted largely from increases in severity as the costs of security class actions increased. Excess D&O also contributed adverse development due to similar causes.

U.S. Property and Special Risks

During 2020, we recognized $80 million of favorable prior year development in U.S. Property and Special Risks, net of external reinsurance but before ADC cessions.

During 2019, we recognized $204 million of favorable prior year development in U.S. Property and Special Risks, net of external reinsurance but before ADC cessions, mainly due to favorable development from the 2017 Catastrophes.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	3,854	$	3,725	$	3,658	$	3,653	$	3,638	$	3,676	$	3,683	$	3,676	$	3,674	$	3,670	$	(4)	$	29	49,179	$	(22)	$	(12)	$	3,648	$	17
2012				4,168		4,279		4,261		4,219		4,331		4,322		4,304		4,288		4,284		(4)		59	48,424		(23)		(13)		4,261		46
2013						2,531		2,536		2,393		2,438		2,450		2,453		2,444		2,436		(8)		38	49,780		(36)		(20)		2,400		18
2014								2,946		2,715		2,787		2,773		2,792		2,772		2,752		(20)		77	60,227		(78)		(43)		2,674		34
2015										3,104		2,984		2,914		2,903		2,868		2,862		(6)		77	58,745		(99)		(54)		2,763		23
2016												3,152		3,189		3,103		3,089		3,094		5		100	53,912		-		-		3,094		100
2017														5,374		4,907		4,746		4,753		7		226	78,450		-		-		4,753		226
2018																3,734		3,800		3,777		(23)		338	67,915		-		-		3,777		338
2019																		2,841		2,836		(5)		247	76,438		-		-		2,836		247
2020																				4,492				2,426	59,238		-		-		4,492		2,426
Total																			$	34,956	$	(58)				$	(258)				34,698
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(28,705)		-					8				(28,697)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				311		(6)					(131)				180
Unallocated loss adjustment expense prior year development																						(16)
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	6,562	$	(80)				$	(381)				6,181

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	3,656	$	3,664	$	3,661	$	3,651	$	3,648	$	(3)
2012		4,304		4,297		4,285		4,262		4,261		(1)
2013		2,411		2,412		2,426		2,406		2,400		(6)
2014		2,720		2,712		2,728		2,696		2,674		(22)
2015		2,843		2,816		2,816		2,774		2,763		(11)
2016		3,152		3,189		3,103		3,089		3,094		5
2017		-		5,374		4,907		4,746		4,753		7
2018		-		-		3,734		3,800		3,777		(23)
2019		-		-		-		2,841		2,836		(5)
2020		-		-		-		-		4,492		-
Total	$	19,086	$	24,464	$	27,660	$	30,265	$	34,698	$	(59)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(28,697)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										180		13
Unallocated loss adjustment expense prior year development										-		(15)
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	6,181	$	(61)

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	(20)	$	(19)	$	(15)	$	(23)	$	(22)	$	1
2012		(27)		(25)		(19)		(26)		(23)		3
2013		(27)		(38)		(27)		(38)		(36)		2
2014		(67)		(61)		(64)		(76)		(78)		(2)
2015		(141)		(98)		(87)		(94)		(99)		(5)
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(282)	$	(241)	$	(212)	$	(257)	$	(258)	$	(1)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										8		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(131)		7
Unallocated loss adjustment expense prior year development												1
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(381)	$	7

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	1,025	$	2,346	$	2,935	$	3,204	$	3,407	$	3,504	$	3,560	$	3,591	$	3,607	$	3,616	$	-
2012				841		2,712		3,407		3,772		3,989		4,117		4,149		4,183		4,199		-
2013						735		1,573		1,852		2,045		2,193		2,305		2,330		2,348		(1)
2014								914		1,763		2,115		2,329		2,469		2,561		2,600		(3)
2015										1,037		1,872		2,239		2,494		2,620		2,690		(4)
2016												1,000		2,029		2,365		2,616		2,801		-
2017														1,359		3,070		3,793		4,145		-
2018																1,060		2,678		3,079		-
2019																		1,138		2,046		-
2020																				1,181		-
Total																			$	28,705	$	(8)

Reserving Process and Methodology

U.S. Property products include commercial, industrial and energy-related property insurance products and services that cover exposures to manmade and natural disasters, including business interruption. U.S. Special Risk products include aerospace, environmental, political risk, trade credit, surety and marine insurance, and program business for various small and medium sized enterprises insurance lines. The program segments include both property and casualty exposures.

We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail classes such as U.S. Property.

IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods are not employed due to the high severity nature of the claims and different mix of claims from year to year.

We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of reserves for natural catastrophe losses.

For program business, we use methods which vary by line of business. For property classes, we use methods similar to those noted above. For liability classes, we use methods similar to those described in the casualty sections detailed above.

Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim projections provided by our claims staff to assist in developing the appropriate reserve.

Prior Year Development

During 2020, we recognized $80 million of favorable prior year development in U.S. Property and Special Risks driven largely by attritional property and favorable emergence on specialty losses coming in better than expected.

During 2019, we recognized $204 million of favorable prior year development in U.S. Property and Special Risks driven largely by favorable development on the 2017 Hurricanes (Harvey, Irma, Maria) as well as subrogation recoverable on the 2017 California wildfires and by favorable emergence on non-Catastrophe Commercial Property, Program and Specialty classes.

During 2018, we recognized $497 million of favorable prior year development in U.S. Property and Special Risks driven largely by favorable development on the 2017 Catastrophes as well as favorable emergence on non-Catastrophe Commercial Property, and Program and Specialty classes.

U.S. Personal Insurance

During 2020, we recognized $94 million of unfavorable prior year development in U.S. Personal Insurance, net of external reinsurance but before ADC cessions, mainly due to large losses in Homeowners and Umbrella.

During 2019, we recognized $96 million of favorable prior year development in U.S. Personal Insurance, net of external reinsurance but before ADC cessions, mainly due favorable development from the 2017 Catastrophes.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		IBNR Impact of Adverse Development Reinsurance Agreement		2020 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	1,886	$	1,908	$	1,896	$	1,891	$	1,890	$	1,886	$	1,881	$	1,879	$	1,878	$	1,879	$	1	$	1	413,231	$	(1)	$	(1)	$	1,878	$	-
2012				2,208		2,128		2,109		2,083		2,077		2,094		2,095		2,099		2,101		2		2	403,986		(1)		(1)		2,100		1
2013						1,887		1,816		1,803		1,782		1,780		1,776		1,777		1,778		1		1	335,278		(2)		(1)		1,776		-
2014								1,552		1,562		1,572		1,572		1,583		1,584		1,588		4		5	274,913		(4)		(2)		1,584		3
2015										1,511		1,498		1,494		1,483		1,482		1,485		3		9	260,773		(5)		(2)		1,480		7
2016												1,536		1,533		1,533		1,540		1,542		2		13	246,867		-		-		1,542		13
2017														1,878		2,137		2,011		2,057		46		187	218,879		-		-		2,057		187
2018																2,188		2,193		2,154		(39)		156	100,658		-		-		2,154		156
2019																		1,593		1,664		71		255	88,410		-		-		1,664		255
2020																				954				272	41,698		-		-		954		272
Total																			$	17,202	$	91				$	(13)				17,189
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(16,002)		-					2				(16,000)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				(67)		3					(6)				(73)
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	1,133	$	94				$	(17)				1,116

Incurred Losses and Loss Adjustment Expenses, Undiscounted, Net of Reinsurance (including impact of ADC)
	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	1,881	$	1,880	$	1,878	$	1,877	$	1,878	$	1
2012		2,088		2,091		2,093		2,098		2,100		2
2013		1,774		1,774		1,774		1,776		1,776		-
2014		1,564		1,564		1,571		1,580		1,584		4
2015		1,476		1,475		1,472		1,476		1,480		4
2016		1,536		1,533		1,533		1,540		1,542		2
2017		-		1,878		2,137		2,011		2,057		46
2018		-		-		2,188		2,193		2,154		(39)
2019		-		-		-		1,593		1,664		71
2020		-		-		-		-		954		-
Total	$	10,319	$	12,195	$	14,646	$	16,144	$	17,189	$	91
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										(16,000)		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(73)		3
Unallocated loss adjustment expense prior year development										-		-
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	1,116	$	94

The following table provides our attribution of our reinsurance recoverable for the ADC only (included in the table above):

	Calendar Years Ended December 31, (in millions)											Change in Incurred Loss and ALAE
Accident Year		2016		2017		2018		2019		2020
	Unaudited
2011	$	(5)	$	(1)	$	(1)	$	(1)	$	(1)	$	-
2012		11		(3)		(2)		(1)		(1)		-
2013		(8)		(6)		(2)		(1)		(2)		(1)
2014		(8)		(8)		(12)		(4)		(4)		-
2015		(22)		(19)		(11)		(6)		(5)		1
2016		-		-		-		-		-		-
2017		-		-		-		-		-		-
2018		-		-		-		-		-		-
2019		-		-		-		-		-		-
2020		-		-		-		-		-		-
Total	$	(32)	$	(37)	$	(28)	$	(13)	$	(13)	$	-
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance from the table below										2		-
Liabilities for losses and allocated loss adjustment expenses before 2011, net of reinsurance										(6)		1
Liabilities for losses and loss adjustment expenses and prior year loss development, net of reinsurance									$	(17)	$	1

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2011	$	1,204	$	1,752	$	1,814	$	1,840	$	1,860	$	1,869	$	1,873	$	1,874	$	1,875	$	1,876	$	-
2012				1,238		1,936		1,996		2,035		2,065		2,079		2,085		2,095		2,098		-
2013						1,109		1,634		1,705		1,744		1,759		1,766		1,772		1,774		-
2014								959		1,380		1,463		1,507		1,536		1,555		1,568		(1)
2015										931		1,320		1,411		1,439		1,455		1,461		(1)
2016												857		1,344		1,422		1,460		1,501		-
2017														941		1,672		1,896		1,789		-
2018																1,227		1,939		1,973		-
2019																		884		1,295		-
2020																				667		-
Total																			$	16,002	$	(2)

Reserving Process and Methodology

U.S. Personal Insurance consists of accident and health and personal lines. Accident and health products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile and homeowners’ insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection. Personal lines also provides insurance for high net worth individuals offered through AIG Private Client Group, including auto, homeowners, umbrella, yacht, fine art and collections insurance. Personal lines are generally short-tail in nature.

We primarily segment our analysis by line of business and may separately review various sub-segments, such as specific accident and health products and property damage versus liability for personal lines products.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail product lines such as personal property.

Frequency/severity and loss development methods are utilized for domestic personal auto product lines.

For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto. Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other diagnostic metrics.

In general, development for U.S. Personal Insurance classes has been very stable, with only modest changes in the initial selected loss ratios for this business.

Prior Year Development

During 2020, we recognized $94 million of unfavorable prior year development in U.S. Personal Insurance driven largely by large severity claims in Homeowners and Umbrella books of business.

During 2019, we recognized $96 million of favorable prior year development in U.S. Personal Insurance driven largely by subrogation recoverable on the 2017 California wildfires and favorable development from Hurricanes Harvey, Irma and Maria.

During 2018, we recognized $255 million of adverse prior year development in U.S. Personal Insurance driven largely by development on the California wildfires and Hurricane Irma in 2017.

UK/Europe Casualty and Financial Lines

During 2020, we recognized $258 million of unfavorable prior year development in Europe Casualty and Financial Lines driven by higher severity in losses reported.

During 2019, we recognized $161 million of unfavorable prior year development in Europe Casualty and Financial Lines driven by greater frequency of large losses than expected.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2011	$	1,332	$	1,284	$	1,365	$	1,415	$	1,509	$	1,515	$	1,560	$	1,539	$	1,539	$	1,528	$	(11)	$	45	236,387
2012				1,153		1,128		1,090		1,176		1,239		1,214		1,272		1,258		1,273		15		57	178,428
2013						1,104		1,149		1,128		1,106		1,146		1,180		1,227		1,250		23		73	150,978
2014								1,104		1,075		1,100		1,106		1,100		1,188		1,131		(57)		85	149,799
2015										1,165		1,314		1,351		1,244		1,315		1,300		(15)		136	155,761
2016												1,403		1,543		1,581		1,587		1,681		94		243	175,940
2017														1,433		1,405		1,334		1,418		84		358	184,069
2018																1,463		1,502		1,590		88		551	191,493
2019																		1,380		1,411		31		680	175,315
2020																				1,382				1,086	101,348
Total																			$	13,964	$	252
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(7,925)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				787		6
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	6,826	$	258
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	Unaudited
2011	$	132	$	365	$	551	$	798	$	948	$	1,075	$	1,189	$	1,257	$	1,314	$	1,338
2012				111		321		469		660		797		890		997		1,052		1,082
2013						95		357		514		662		783		904		981		1,033
2014								76		273		434		560		667		736		803
2015										74		253		456		599		724		905
2016												126		402		620		818		980
2017														103		298		476		637
2018																120		380		603
2019																		94		410
2020																				134
Total																			$	7,925
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

UK/Europe is our largest non-U.S. region for Liability and Financial Lines. UK/Europe Casualty and Financial Lines is composed of third-party coverages including general liability, auto liability, D&O, professional liability and various other lines of business throughout both the UK and Continental Europe. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often subject to similar trends. These lines are impacted by the underwriting cycle and external judicial trends. The largest share of business is in the UK, but significant business is also written in other European countries such as Germany, France, and Italy.

We primarily segment our analysis by country and line of business. Additionally, we separately review various product lines, including excess versus primary casualty, commercial versus financial institutions management liability, and other specific programs and subsets of business. We maintain a database of detailed historical premium and loss transactions in original currency for business written outside of the U.S. which allows our actuaries to determine loss reserves without foreign exchange distorting development.

We generally use a combination of loss development methods and expected loss ratio methods. For countries and lines of business with sufficient loss volume, loss development methods may be given significant weight for all but the most recent accident years. For smaller countries and more volatile product lines, loss development methods are typically given limited weight for recent accident years. Further, we may rely on larger data subsets in determining the loss development factors and a priori loss ratio assumptions.

In general, the loss development for long-tail lines in UK/Europe has been more stable than the development in U.S. long-tail lines, although some underlying drivers have affected the results in a similar manner (e.g. the impact of the financial crisis in accident years 2008 and 2009).

Prior Year Development

During 2020, we recognized $258 million of unfavorable prior year development in UK and Europe Casualty and Financial Lines driven by Financial Lines in the UK and Europe and Excess Casualty in Europe as we continue to see increased severity of large losses in these classes.

During 2019, we recognized $161 million of unfavorable prior year development in UK and Europe Casualty and Financial Lines driven by increased large loss activity in recent accident years, particularly related to UK directors and officers class action suits against insureds with global exposure, and increased frequency and severity in European casualty for auto liability and employers liability. This was slightly offset by a benefit from an increase in the Ogden rates in the UK used to value long duration claims.

During 2018 we recognized $58 million of unfavorable prior year development in UK/Europe Casualty and Financial Lines driven by increased large loss activity in recent accident years, particularly related to directors and officers class action suits against insureds with global exposure; and increased severity in excess casualty.

UK/Europe Property and Special Risks

During 2020, we recognized $155 million of favorable prior year development in the UK/Europe Property and Special Risks segment, net of external reinsurance.

During 2019, we recognized $108 million of favorable prior year development in the UK/Europe Property and Special Risks segment, net of external reinsurance.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2011	$	1,461	$	1,388	$	1,263	$	1,226	$	1,194	$	1,183	$	1,181	$	1,170	$	1,166	$	1,152	$	(14)	$	(1)	44,583
2012				1,390		1,256		1,184		1,167		1,147		1,152		1,135		1,115		1,121		6		12	40,133
2013						1,475		1,464		1,349		1,330		1,312		1,300		1,281		1,273		(8)		-	40,004
2014								1,519		1,546		1,523		1,514		1,522		1,496		1,458		(38)		(3)	48,374
2015										1,654		1,598		1,580		1,541		1,515		1,509		(6)		16	53,754
2016												1,619		1,768		1,760		1,761		1,757		(4)		24	56,625
2017														1,735		1,685		1,677		1,676		(1)		40	52,864
2018																1,700		1,643		1,614		(29)		101	43,078
2019																		1,238		1,177		(61)		160	30,713
2020																				1,489				662	17,731
Total																			$	14,226	$	(155)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(11,590)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				43		-
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	2,679	$	(155)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	Unaudited
2011	$	349	$	800	$	998	$	1,074	$	1,098	$	1,117	$	1,125	$	1,132	$	1,136	$	1,138
2012				288		745		940		1,009		1,055		1,082		1,092		1,099		1,099
2013						344		843		1,075		1,153		1,203		1,225		1,235		1,242
2014								329		959		1,250		1,321		1,361		1,388		1,399
2015										360		966		1,256		1,370		1,393		1,418
2016												479		1,167		1,427		1,571		1,618
2017														366		999		1,273		1,419
2018																329		1,021		1,219
2019																		293		719
2020																				319
Total																			$	11,590
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

UK/Europe Property products include commercial, industrial and energy-related property insurance products and services that cover exposures to manmade and natural disasters, including business interruption. UK/Europe Special Risk products include aerospace, environmental, political risk, trade credit, surety and marine insurance, and various small and medium sized enterprises insurance lines.

We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail classes such as UK/Europe Property.

IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods are not employed due to the high severity nature of the claims and different mix of claims from year to year.

We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of reserves for natural catastrophe losses.

Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim projections provided by our claims staff to assist in developing the appropriate reserve.

Prior Year Development

During 2020, we recognized $155 million of favorable prior year development in the Europe Property and Special Risks segment driven by lower Property attritional loss activity and favorable emergence across several Specialty classes.

During 2019, we recognized $108 million of favorable prior year development in the Europe Property and Special Risks segment driven by favorable development in Commercial Property and Specialty classes including aviation and marine.

During 2018, we recognized $22 million of favorable prior year development in the Europe Property and Special Risks segment driven by favorable development across most accident years with some adverse development in accident years 2014 and 2016.

UK/Europe and Japan Personal Insurance

During 2020, we recognized $39 million of favorable prior year development in UK/Europe and Japan Personal Insurance, net of external reinsurance.

During 2019, we recognized $119 million of favorable prior year development in UK/Europe and Japan Personal Insurance, net of external reinsurance.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (in millions)																							December 31, 2020
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2020 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2011	$	3,503	$	3,567	$	3,531	$	3,533	$	3,522	$	3,525	$	3,516	$	3,515	$	3,514	$	3,515	$	1	$	3	1,758,202
2012				3,086		3,067		3,046		3,030		3,040		3,029		3,026		3,025		3,025		-		3	1,737,969
2013						2,925		2,925		2,889		2,889		2,884		2,879		2,875		2,875		-		5	1,738,818
2014								2,884		2,893		2,874		2,872		2,863		2,863		2,863		-		6	1,789,156
2015										2,958		2,932		2,933		2,921		2,919		2,920		1		12	1,773,689
2016												2,904		2,898		2,882		2,873		2,869		(4)		18	1,800,392
2017														2,841		2,752		2,732		2,728		(4)		30	1,721,690
2018																3,389		3,306		3,309		3		101	1,898,738
2019																		2,727		2,688		(39)		152	1,694,072
2020																				2,454				542	1,264,520
Total																			$	29,246	$	(42)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(27,077)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2011, net of reinsurance																				50		3
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	2,219	$	(39)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (in millions)
Accident Year		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	Unaudited
2011	$	2,132	$	2,991	$	3,243	$	3,363	$	3,430	$	3,462	$	3,479	$	3,489	$	3,494	$	3,497
2012				1,726		2,526		2,769		2,884		2,944		2,977		2,994		3,003		3,007
2013						1,606		2,398		2,630		2,744		2,804		2,837		2,850		2,858
2014								1,576		2,372		2,609		2,728		2,788		2,814		2,829
2015										1,597		2,414		2,653		2,780		2,826		2,859
2016												1,598		2,376		2,608		2,721		2,779
2017														1,562		2,327		2,531		2,620
2018																1,994		2,795		3,018
2019																		1,561		2,277
2020																				1,333
Total																			$	27,077
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

UK/Europe and Japan Personal Insurance lines consist of accident and health and personal lines. Accident and health products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile and homeowners’ insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection. Personal lines are generally short-tail in nature.

We primarily segment our analysis by line of business (and by country for UK/Europe and Japan business) and may separately review various sub-segments, such as specific accident and health products and property damage versus liability for other personal lines products.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail product lines such as personal property.

Frequency/severity and loss development methods are utilized for domestic personal auto product lines.

For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto. Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other diagnostic metrics.

In general, development for UK/Europe and Japan Personal Insurance classes has been very stable, with only modest changes in the initial selected loss ratios for this business.

Prior Year Development

During 2020, we recognized $39 million of favorable prior year development in UK/Europe and Japan Personal Insurance due to favorable frequency and severity trends.

During 2019, we recognized $119 million of favorable prior year development in UK/Europe and Japan Personal Insurance due to favorable loss trends in personal auto and accident and health business.

During 2018, we recognized $116 million of favorable prior year development in UK/Europe and Japan Personal Insurance due to favorable emergence on catastrophes, accident and health business, and personal auto business.

The table below presents the reconciliation of change in net ultimates from tables above to prior year development for the year ended December 31, 2020:

	Change in Loss and		Re-Attribution		Amortization of
	Loss Adjustment		of ADC		Deferred Gain		Prior Year
(in millions)	Expenses Net Ultimate(a)		Recovery(b)		at Inception		Development
U.S. Workers' Compensation	$	(322)	$	(9)	$	(65)	$	(396)
U.S. Excess Casualty		206		(60)		(50)		96
U.S. Other Casualty		(155)		(4)		(48)		(207)
U.S. Financial Lines		318		57		(34)		341
U.S. Property and Special Risks		(61)		25		(12)		(48)
U.S. Personal Insurance		94		(9)		(2)		83
UK/Europe Casualty and Financial lines		258		-		-		258
UK/Europe Property and Special Risks		(155)		-		-		(155)
UK/Europe and Japan Personal Insurance		(39)		-		-		(39)
Other Operations Run-Off		2		-		-		2
Other product lines		(9)		-		-		(9)
Subtotal, adjusted pre-tax basis	$	137	$	-	$	(211)	$	(74)
Remove impact of Retroactive Reinsurance
Amortization of deferred gain at inception								211
Prior year development ceded under the Asbestos LPT								1
Prior year development ceded under the ADC								(228)
Total, prior years, excluding discount and amortization of deferred gain							$	(90)

(a)Change in net ultimate loss and LAE excludes the portion of prior year development for which we have ceded to the Asbestos Loss Portfolio Transfer (LPT) and the ADC, both of which are provided by NICO and are considered retroactive reinsurance under U.S. GAAP. (b)Reattribution of the ADC recovery takes place annually as we model the future payments on the subject reserves covered by the ADC to determine when the aggregate payments will exceed the attachment. ADC recoverables are then reallocated by line based on payments expected to be made after attachment point is exceeded.

Development on earlier Accident Years

The following table summarizes (favorable) unfavorable development, of incurred losses and loss adjustment expenses on accident years beyond the 10 years shown in the previous section’s development triangles by operating segment and major class of business:

Years Ended December 31,
(in millions)		2020		2019		2018
U.S. Workers' compensation (before discount)	$	(87)	$	(210)	$	153
U.S. Excess casualty		(237)		54		537
U.S. Other casualty		(40)		(170)		129
U.S. Financial Lines		25		11		(1)
U.S. Property and Special Risks		(6)		(3)		39
U.S. Personal Insurance		3		1		2
UK/Europe Casualty and Financial Lines		6		9		1
UK/Europe Property and Special Risks		-		(28)		3
UK/Europe and Japan Personal Insurance		3		-		9
Other Operations Run-Off		4		(46)		154
All Other including unallocated loss adjustment expenses		(128)		116		137
Total prior year (favorable) unfavorable development	$	(457)	$	(266)	$	1,163

Claims Payout Patterns

The following table presents the historical average annual percentage claims payout on an accident year basis at the same level of disaggregation as presented in the claims development table.

Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Year	1		2		3		4		5		6		7		8		9		10
U.S. Workers' compensation	13.4	%	17.6	%	12.1	%	8.0	%	6.3	%	4.3	%	2.9	%	1.9	%	1.9	%	0.8	%
U.S. Excess casualty	0.7		7.4		10.9		16.9		13.0		11.0		9.0		6.8		0.2		4.2
U.S. Other casualty	8.0		14.2		15.6		15.0		12.3		8.6		5.6		2.8		2.0		1.6
U.S. Financial Lines	4.6		17.8		21.2		17.1		13.0		8.7		4.8		4.2		1.2		0.3
U.S. Property and Special Risks	30.2		35.3		13.3		8.0		5.4		3.2		1.2		0.8		0.4		0.2
U.S. Personal Insurance	59.0		29.9		4.9		1.0		1.5		0.6		0.4		0.2		0.1		-
UK/Europe Casualty and Financial Lines	7.6		17.0		13.2		12.6		9.8		9.1		7.0		4.3		3.0		1.6
UK/Europe Property and Special Risks	24.5		39.8		16.9		6.9		2.8		1.9		0.8		0.6		0.2		0.2
UK/Europe and Japan Personal Insurance	56.9		26.7		7.8		3.8		1.9		1.0		0.5		0.3		0.1		0.1

Discounting of Loss Reserves

At December 31, 2020 and 2019, the loss reserves reflect a net loss reserve discount of $725 million and $1.5 billion, respectively, including tabular and non-tabular calculations based upon the following assumptions:

The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York, Pennsylvania and Delaware, and follows the statutory regulations (prescribed or permitted) for each state.

For New York companies, the discount is based on a 5 percent interest rate and the companies’ own payout patterns. The Pennsylvania and Delaware regulators approved use of a consistent discount rate (U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in or Pennsylvania domiciled and Delaware domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers compensation portfolios. In 2020, the regulators also approved that the discount rate will be updated on an annual basis.

The tabular workers’ compensation discount is calculated based on the mortality rate used in the 2007 U.S. Life table and interest rates prescribed or permitted by each state (i.e. New York is based on 5 percent interest rate and Pennsylvania and Delaware are based on US treasury plus liquidity rate).

The discount for asbestos reserves has been fully accreted.

The discount consists of $285 million and $582 million of tabular discount, and $440 million and $967 million of non-tabular discount for workers’ compensation at December 31, 2020 and 2019, respectively. During the years ended December 31, 2020, 2019, and 2018 the benefit/(charge) from changes in discount of $(516) million, $(955) million and $371 million, respectively, were recorded as part of the policyholder benefits and losses incurred in the Consolidated Statement of Income.

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

	December 31, 2020						December 31, 2019
	North America			Other			North America			Other
	Commercial			Operations			Commercial			Operations
(in millions)	Insurance			Run-Off(b)		Total	Insurance			Run-Off		Total
U.S. workers' compensation	$	1,636	$	-	$	1,636	$	2,134	$	666	$	2,800
Retroactive reinsurance		(911)		-		(911)		(1,251)		-		(1,251)
Total reserve discount(a)	$	725	$	-	$	725	$	883	$	666	$	1,549

(a)Excludes $151 million and $172 million of discount related to certain long tail liabilities in the UK at December 31, 2020 and 2019, respectively.

(b)Excludes $493 million of discount which was 100 percent ceded to Fortitude Re at December 31, 2020. On June 2, 2020, we completed the Majority Interest Fortitude Sale. Refer to Note 1 for additional information.

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

Years Ended December 31,	2020						2019						2018
	North						North						North
	America			Other			America			Other			America			Other
	Commercial		Operations				Commercial		Operations				Commercial		Operations
(in millions)	Insurance		Run-Off(b)			Total	Insurance		Run-Off			Total	Insurance		Run-Off			Total
Current accident year	$	71	$	-	$	71	$	108	$	-	$	108	$	119	$	-	$	119
Accretion and other adjustments
to prior year discount		(162)		(18)		(180)		(229)		(87)		(316)		(108)		(58)		(166)
Effect of interest rate changes		(407)		-		(407)		(527)		(220)		(747)		305		113		418
Net reserve discount
benefit (charge)		(498)		(18)		(516)		(648)		(307)		(955)		316		55		371
Change in discount on loss
reserves ceded under
retroactive reinsurance		340		-		340		469		-		469		(180)		-		(180)
Net change in total
reserve discount(a)	$	(158)	$	(18)	$	(176)	$	(179)	$	(307)	$	(486)	$	136	$	55	$	191

(a) Excludes $(20) million, $9 million, and $(9) million of discount related to certain long tail liabilities in the UK at December 31, 2020, 2019, and 2018, respectively.

(b) On June 2, 2020, we completed the Majority Interest Fortitude Sale. Refer to Note 1 for additional information. Change in discount prior to the sale is included in the above at December 31, 2020. Following the sale, 100 percent of the discount is ceded to Fortitude Re.

During 2020, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates reflecting a decline in U.S. Treasury rates along with changes in payout pattern assumptions. This resulted in a decrease in the loss reserve discount by $407 million in 2020.

During 2019, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates reflecting a decline in U.S. Treasury rates along with changes in payout pattern assumptions. This resulted in a decrease in the loss reserve discount by $747 million in 2019.

During 2018, 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 $418 million in 2018.

Future Policy Benefits

Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in exchange for fixed payments over a fixed determinable period of time with a life contingency feature. In addition, reserves for contracts in loss recognition are adjusted to reflect the effect of unrealized gains on fixed maturity securities available for sale.

Future policy benefits also include certain guaranteed benefits of variable annuity products that are not considered embedded derivatives, primarily guaranteed minimum death benefits.

For additional information on guaranteed minimum death benefits see Note 14.

The liability for long-duration future policy benefits has been established including assumptions for interest rates which vary by year of issuance and product, and range from approximately 0.1 percent to 14.6 percent. Mortality and surrender rate assumptions are generally based on actual experience when the liability is established.

Policyholder Contract Deposits

The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from separate accounts, plus accrued interest credited at rates ranging from 0 percent to 9.0 percent at December 31, 2020, less withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because they are recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenues.

In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life contingencies, funding agreements and GICs, policyholder contract deposits also include our liability for (i) certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value, (ii) annuities issued in a structured settlement arrangement with no life contingency and (iii) certain contracts we have elected to account for at fair value.

For additional information on guaranteed benefits accounted for as embedded derivatives see Note 14.

For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life of the contract. For universal life policies without secondary guarantees, for which profits followed by losses are first expected after contract inception, we establish a liability, in addition to policyholder account balances, so that expected future losses are recognized in proportion to the emergence of profits in the earlier (profitable) years. Universal life account balances as well as these additional liabilities related to universal life products are reported within Policyholder contract deposits in the Consolidated Balance Sheet. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale and prior to 2018, equity securities at fair value on accumulated assessments, with related changes recognized through Other comprehensive income. The policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.

Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-term notes to investors, which are secured by GICs issued to the trust by one of our Life and Retirement companies through our Institutional Markets business.

The following table presents universal life policies with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives):

	Years Ended December 31,
(in millions)		2020		2019		2018
Balance, beginning of year	$	2,685	$	2,640	$	2,351
Incurred guaranteed benefits*		1,041		514		758
Paid guaranteed benefits		(470)		(469)		(469)
Balance, end of year	$	3,256	$	2,685	$	2,640

*Incurred guaranteed benefits include the portion of assessments established as additions to reserves as well as changes in estimates (assumption unlockings) affecting these reserves.

The following table presents details concerning our Universal life policies with secondary guarantees and similar features, by benefit type:

At December 31,
(dollars in millions)		2020		2019
Account value	$	3,078	$	2,850
Net amount at risk		63,721		59,924
Average attained age of contract holders		53		54

The following table presents Policyholder contract deposits by product line:

At December 31,
(in millions)		2020		2019
Policyholder contract deposits:
Fixed annuities	$	49,206	$	50,446
Group Retirement		43,893		42,207
Life Insurance		15,407		14,403
Variable annuities		10,964		10,008
Index annuities		25,220		20,698
Institutional Markets		11,361		9,965
Fortitude Re		4,200		4,142
Total Policyholder contract deposits	$	160,251	$	151,869

Other Policyholder Funds

Other policyholder funds include unearned revenue reserves (URR). URR consist of front-end loads on investment-oriented contracts, representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. URR for investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits (EGPs) to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the assumptions underlying EGPs as DAC. Amortization of URR is recorded in Policy fees. Similar to shadow DAC, URR related to investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale and also, prior to 2018, equity securities at fair value on estimated gross profits, with related changes recognized through Other comprehensive income (shadow URR).

Other policyholder funds also include provisions for future dividends to participating policyholders, accrued in accordance with all applicable regulatory or contractual provisions. Participating life business represented approximately 1.4 percent of gross insurance in force at December 31, 2020 and 1.9 percent of gross domestic premiums and other considerations in 2020. The amount of annual dividends to be paid is approved locally by the boards of directors of the Life and Retirement companies. Provisions for future dividend payments are computed by jurisdiction, reflecting local regulations. The portions of current and prior net income and of current unrealized appreciation of investments that can inure to our benefit are restricted in some cases by the insurance contracts and by the local insurance regulations of the jurisdictions in which the policies are in force.

Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent, reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated and recognized as revenue with the unearned portions of the premiums recorded as liabilities in Other policyholder funds. Experience adjustments vary according to the type of contract and the territory in which the policy is in force and are subject to local regulatory guidance.