Note 8. Claim and Claim Adjustment Expense Reserves

CNA’s property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (“IBNR”) claims as of the reporting date. CNA’s reserve projections are based primarily on detailed analysis of the facts in each case, CNA’s experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNA’s ultimate cost for insurance losses will not exceed current estimates.

Liability for Unpaid Claim and Claim Adjustment Expenses

The table below reconciles the net liability for unpaid claim and claim adjustment expenses to the amount presented in the Consolidated Balance Sheets.


December 31	2018
(In millions)

Net liability for unpaid claim and claim adjustment expenses:
Property & Casualty Operations	$	14,353
Other Insurance Operations (a)		3,612
Total net claim and claim adjustment expenses		17,965

Reinsurance receivables: (b)
Property & Casualty Operations		1,605
Other Insurance Operations (c)		2,414
Total reinsurance receivables		4,019
Total gross liability for unpaid claims and claims adjustment expenses	$	21,984

(a)	Other Insurance Operations amounts are primarily related to long term care claim reserves, which are long duration insurance contracts, but also include amounts related to unfunded structured settlements arising from short duration insurance contracts.

(b)	Reinsurance receivables presented do not include reinsurance receivables related to paid losses.

(c)	The Other Insurance Operations reinsurance receivables are primarily related to A&EP claims covered under the loss portfolio transfer.

The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of Other Insurance Operations.


Year Ended December 31	2018			2017			2016
(In millions)

Reserves, beginning of year:
Gross	$	22,004		$	22,343		$	22,663
Ceded		3,934			4,094			4,087
Net reserves, beginning of year		18,070			18,249			18,576

Net incurred claim and claim adjustment expenses:
Provision for insured events of current year		5,358			5,201			5,025
Decrease in provision for insured events of prior years		(179	)		(381	)		(342	)
Amortization of discount		176			179			175
Total net incurred (a)		5,355			4,999			4,858

Net payments attributable to:
Current year events		(1,046	)		(975	)		(967	)
Prior year events		(4,285	)		(4,366	)		(4,167	)
Total net payments		(5,331	)		(5,341	)		(5,134	)

Foreign currency translation adjustment and other		(129	)		163			(51	)

Net reserves, end of year		17,965			18,070			18,249
Ceded reserves, end of year		4,019			3,934			4,094
Gross reserves, end of year	$	21,984		$	22,004		$	22,343

(a)

Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Statements of Income due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables and benefit expenses related to future policy benefits, which are not reflected in the table above.

Reserving Methodology

In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. Factors considered include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in CNA’s pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, CNA generally projects ultimate losses using several common actuarial methods as listed below. CNA reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as the result of CNA’s consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Further, CNA does not establish case reserves for allocated loss adjustment expenses (ALAE), therefore ALAE reserves are included in CNA’s estimate of IBNR. The most frequently utilized methods to project ultimate losses include the following:

🌑

Paid development: The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid losses.

🌑

Incurred development: The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.

🌑

Loss ratio: The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year.

🌑

Bornhuetter-Ferguson using premiums and paid loss: The Bornhuetter-Ferguson using premiums and paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method.

🌑

Bornhuetter-Ferguson using premiums and incurred loss: The Bornhuetter-Ferguson using premiums and incurred loss method is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses.

🌑

Frequency times severity: The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates.

🌑

Stochastic modeling: The stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.

For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, CNA’s actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of CNA’s products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, CNA may not assign any weight to the paid and incurred development methods. CNA may use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.

Certain claim liabilities are more difficult to estimate or have differing methodologies and considerations which are described below.

Mass Tort and A&EP Reserves

CNA’s reserving methodologies for mass tort and A&EP are similar as both are based on detailed reviews of large accounts with estimates of ultimate payments based on the facts in each case and CNA’s view of applicable law and coverage litigation.

Other Insurance Operations

Other Insurance Operations includes CNA’s run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and CNA has the ability to increase policy premiums, subject to state regulatory approval.

CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for CNA’s Other Insurance Operations. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for the long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Both elements of the Other Insurance Operations reserves are discounted as discussed in Note 1.

Gross and Net Carried Reserves

The following tables present the gross and net carried reserves:


	Property		Other
	and Casualty		Insurance
December 31, 2018	Operations		Operations		Total
(In millions)

Gross Case Reserves	$	6,671	$	4,724	$	11,395
Gross IBNR Reserves		9,287		1,302		10,589

Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	15,958	$	6,026	$	21,984


Net Case Reserves	$	6,063	$	3,460	$	9,523
Net IBNR Reserves		8,290		152		8,442

Total Net Carried Claim and Claim Adjustment Expense Reserves	$	14,353	$	3,612	$	17,965


December 31, 2017
(In millions)

Gross Case Reserves	$	6,913	$	4,757	$	11,670
Gross IBNR Reserves		9,156		1,178		10,334

Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	16,069	$	5,935	$	22,004


Net Case Reserves	$	6,343	$	3,302	$	9,645
Net IBNR Reserves		8,232		193		8,425

Total Net Carried Claim and Claim Adjustment Expense Reserves	$	14,575	$	3,495	$	18,070

Net Prior Year Development

Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (“development”). These changes can be favorable or unfavorable.

The following table and discussion presents detail of the development in CNA’s Property & Casualty Operations:


Year Ended December 31	2018			2017			2016
(In millions)

Medical professional liability	$	47		$	30		$		9
Other professional liability and management liability		(127	)		(126	)		(14	0)
Surety		(70	)		(84	)		(6	3)
Commercial auto		1			(35	)		(4	7)
General liability		32			(24	)		(6	5)
Workers’ compensation		(32	)		(63	)		14	5
Other		(32	)		(6	)		(12	7)
Total pretax (favorable) unfavorable development	$	(181	)	$	(308	)	$	(28	8)

Favorable net prior year loss reserve development of $19 million, $72 million and $46 million was recorded for Other Insurance Operations for the years ended December 31, 2018, 2017 and 2016. The favorable net prior year loss reserve development for the year ended December 31, 2018 was driven by lower than expected claim severity.

Development Tables

For CNA’s Property & Casualty Operations, the following tables present further detail and commentary on the development reflected in the financial statements for each of the periods presented. Also presented are loss reserve development tables that illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short duration insurance contracts for certain lines of business within CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”). Not all lines of business are presented based on their context to CNA’s overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short duration contracts when the contracts are not expected to remain in force for an extended period of time. The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of CNA’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.

The information in the tables is reported on a net basis after reinsurance and does not include the effects of discounting. The information contained in calendar years 2017 and prior is unaudited. To the extent CNA enters into a commutation, the transaction is reported on a prospective basis. To the extent that CNA enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with it.

The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.

In the loss reserve development tables, IBNR includes reserves for incurred but not reported losses and expected development on case reserves.

2018

Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2014 and 2017 in CNA’s hospitals business. In addition, there was higher than expected frequency and severity in aging services in accident years 2014 through 2017 combined, partially offset by lower than expected frequency in accident year 2015.

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency in recent accident years related to financial institutions and professional liability errors and omissions (“E&O”), favorable severity in accident years 2015 and prior related to professional liability E&O and favorable outcomes on individual claims in financial institutions in accident years 2013 and prior.

Favorable development in surety was due to lower than expected loss emergence for accident years 2017 and prior.

Unfavorable development in general liability was driven by higher than expected claim severity in unsupported umbrella in accident years 2013 through 2016.

Favorable development in workers’ compensation was driven by lower frequency and severity experience and favorable impacts from California reforms.

Favorable development in other coverages was driven by lower than expected claim severity in catastrophes in accident year 2017 for property in Commercial, better than expected frequency in the liability portion of the package business in Canada and general liability in Europe in casualty and better than expected large loss frequency in the energy book in accident year 2017, as well as a reduction in incurred losses within the Europe marine discontinued portfolio in energy and marine and lower than expected frequency in accident years 2015 and prior in Europe in healthcare and technology for International. This was partially offset by unfavorable development primarily driven by higher than expected severity in Canada and higher than expected frequency in Hardy, both in accident year 2017 in property and increased loss severity in the accident year 2017 in Europe professional indemnity in specialty for International.

2017

Unfavorable development in medical professional liability was primarily due to continued higher than expected frequency in aging services and higher than expected severity for hospitals in recent accident years. This was partially offset by favorable development in hospitals in prior accident years as well as favorable development related to unallocated claim adjustment expenses.

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and a lower frequency of large losses for accident years 2011 through 2015 for professional and management liability, lower than expected claim frequency in accident years 2012 through 2015 for professional liability and lower than expected severity in accident years 2014 through 2015 for professional liability.

Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2015 and prior.

Favorable development in commercial auto was primarily due to lower than expected severity in accident years 2013 through 2016, as well as a large favorable recovery on a claim in accident year 2012.

Favorable development in general liability was due to lower than expected severity in life sciences.

Favorable development in workers’ compensation was primarily related to decreases in frequency and severity in recent accident years, partially attributable to California reforms impacting medical costs. This was partially offset by unfavorable development related to an adverse arbitration ruling on reinsurance recoverables from older accident years as well as the recognition of loss estimates associated with earned premium from a prior exposure year.

Unfavorable development for other coverages was primarily due to higher than expected severity in accident year 2015 arising from the management liability business, partially offset by favorable development in accident years 2014 and prior. Additional unfavorable development was related to adverse large claims experience in the CNA Hardy political risks portfolio, relating largely to accident year 2016. This was partially offset by favorable development related to better than expected frequency in accident years 2014 through 2016 in property and in energy and marine.

2016

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of claims in accident years 2010 through 2014 related to professional services and financial institutions. This was partially offset by unfavorable development related to a specific financial institutions claim in accident year 2014, higher management liability severities in accident year 2015 and deterioration on credit crises-related claims in accident year 2009.

Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2014 and prior.

Favorable development in commercial auto was primarily due to favorable settlements on claims in accident years 2010 through 2014 and lower than expected severities in accident years 2012 through 2015.

Favorable development in general liability was primarily due to better than expected claim settlements in accident years 2012 through 2014, better than expected severity on umbrella claims in accident years 2010 through 2013 and better than expected severity in medical products liability in accident years 2010 through 2015. This was partially offset by unfavorable development related to an increase in reported claims prior to the closing of the three year window set forth by the Minnesota Child Victims Act in accident years 2006 and prior.

Unfavorable development in workers’ compensation was primarily due to higher than expected severity for Defense Base Act contractors that largely resulted from a reduction of expected future recoveries from the U.S. Department of Labor under the War Hazard Act. Further unfavorable development was due to the impact of recent Florida court rulings for accident years 2008 through 2015. These were partially offset by favorable development related to lower than expected frequencies related to the ongoing Middle Market and Small Business results for accident years 2009 through 2014.

Favorable development in other coverages was due to better than expected claim frequency and claim severity in accident years 2010 through 2015, better than expected loss frequency in accident years 2013 through 2015, better than expected severity on the December 2015 United Kingdom floods, better than expected attritional losses and large loss experience on accident years 2013 through 2015 for Hardy business and favorable settlements on claims in accident years 2013 and prior related to CNA’s Canadian package business. Additional favorable development was due to a commutation of exposures in marine run-off classes on CNA’s Europe business and lower than expected frequency of large losses related to CNA’s Europe business in accident year 2013. This was partially offset by unfavorable development related to higher than expected severity from a fourth quarter 2015 catastrophe event.

Property & Casualty Operations – Line of Business Composition

The table below presents the net liability for unpaid claim and claim adjustment expenses, by line of business for Property & Casualty Operations:


December 31	2018
(In millions)

Medical professional liability	$	1,457
Other professional liability and management liability		2,849
Surety		379
Commercial auto		412
General liability		3,195
Workers’ compensation		3,968
Other		2,093
Total net liability for unpaid claim and claim adjustment expenses	$	14,353


*Medical Professional Liability*
																												December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																														Cumulative
																														Number of
December 31	2009 (a)		2010 (a)		2011 (a)		2012 (a)			2013 (a)			2014 (a)			2015 (a)			2016 (a)			2017 (a)			2018			IBNR		Claims

(In millions, except reported claims data)

Accident Year
2009	$	389	$	390	$	392	$	392		$	366		$	346		$	336		$	309		$	302		$	310		$	-		14,716
2010				402		412		423			426			415			395			365			360			356			-		14,615
2011						429		437			443			468			439			434			437			437			8		16,505
2012								464			469			508			498			493			484			493			10		17,691
2013											462			479			500			513			525			535			28		19,442
2014														450			489			537			530			535			30		19,602
2015																	433			499			510			494			78		17,835
2016																				427			487			485			120		15,427
2017																							412			449			217		13,777
2018																										404			333		11,205

																							Total		$	4,498		$	824



Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	9	$	63	$	143	$	211		$	247		$	269		$	280		$	288		$	291		$	300
2010				10		86		173			257			306			326			337			346			350
2011						17		109			208			295			347			375			398			409
2012								14			117			221			323			388			427			457
2013											17			119			255			355			414			462
2014														23			136			258			359			417
2015																	22			101			230			313
2016																				18			121			246
2017																							19			107
2018																										21

																							Total		$	3,082


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																									$	1,416
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																										18
Liability for unallocated claim adjustment expenses for accident years presented																										23

Total net liability for unpaid claim and claim adjustment expenses																									$	1,457


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended
December 31																										Total


Accident Year
2009	$	1	$	2	$	-	$	(26	)	$	(20	)	$	(10	)	$	(27	)	$	(7	)	$	8		$	(79	)
2010				10		11		3			(11	)		(20	)		(30	)		(5	)		(4	)		(46	)
2011						8		6			25			(29	)		(5	)		3			-			8
2012								5			39			(10	)		(5	)		(9	)		9			29
2013											17			21			13			12			10			73
2014														39			48			(7	)		5			85
2015																	66			11			(16	)		61
2016																				60			(2	)		58
2017																							37			37

Total net development for the accident years presented above																	60			58			47
Total net development for accident years prior to 2009																	(51	)		(21	)		1
Total unallocated claim adjustment expense development																	-			(7	)		(1	)

Total																$	9		$	30		$	47

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.


*Other Professional Liability and Management Liability*
																													December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																															Cumulative
																															Number of
December 31	2009 (a)		2010 (a)		2011 (a)			2012 (a)			2013 (a)			2014 (a)			2015 (a)			2016 (a)			2017 (a)			2018			IBNR		Claims

(In millions, except reported claims data)

Accident Year
2009	$	831	$	875	$	908		$	903		$	893		$	903		$	897		$	906		$	904		$	892		$	18		17,374
2010				828		828			848			848			847			837			824			827			821			19		17,888
2011						880			908			934			949			944			911			899			888			39		18,728
2012									923			909			887			878			840			846			833			41		18,491
2013												884			894			926			885			866			863			65		17,918
2014															878			898			885			831			835			88		17,515
2015																		888			892			877			832			194		17,333
2016																					901			900			900			279		17,787
2017																								847			845			479		17,780
2018																											850			726		16,564

																								Total		$	8,559		$	1,948



Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	37	$	195	$	361		$	553		$	641		$	722		$	772		$	801		$	825		$	844
2010				31		204			405			541			630			670			721			752			784
2011						71			314			503			605			683			726			781			796
2012									56			248			400			573			651			711			755
2013												54			249			447			618			702			754
2014															51			223			392			515			647
2015																		60			234			404			542
2016																					64			248			466
2017																								57			222
2018																											54

																								Total		$	5,864


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																										$	2,695
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																											90
Liability for unallocated claim adjustment expenses for accident years presented																											64

Total net liability for unpaid claim and claim adjustment expenses																										$	2,849


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended December 31																											Total


Accident Year
2009	$	44	$	33	$	(5	)	$	(10	)	$	10		$	(6	)	$	9		$	(2	)	$	(12	)	$	61
2010				-		20			-			(1	)		(10	)		(13	)		3			(6	)		(7	)
2011						28			26			15			(5	)		(33	)		(12	)		(11	)		8
2012									(14	)		(22	)		(9	)		(38	)		6			(13	)		(90	)
2013												10			32			(41	)		(19	)		(3	)		(21	)
2014															20			(13	)		(54	)		4			(43	)
2015																		4			(15	)		(45	)		(56	)
2016																					(1	)		-			(1	)
2017																								(2	)		(2	)

Total net development for the accident years presented above																		(125	)		(94	)		(88	)
Total net development for accident years prior to 2009																		(15	)		(25	)		(32	)
Total unallocated claim adjustment expense development																		-			(7	)		(7	)

Total																	$	(140	)	$	(126	)	$	(127	)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.


*Surety*
																														December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																																Cumulative
																																Number of
December 31	2009 (a)		2010 (a)			2011 (a)			2012 (a)			2013 (a)			2014 (a)			2015 (a)			2016 (a)			2017 (a)			2018			IBNR		Claims

(In millions, except reported claims data)

Accident Year
2009	$	114	$	114		$	103		$	85		$	68		$	59		$	52		$	53		$	53		$	52		$	1		6,688
2010				112			112			111			84			76			66			63			59			61			1		5,971
2011							120			121			116			87			75			70			66			62			1		5,808
2012										120			122			98			70			52			45			39			2		5,559
2013													120			121			115			106			91			87			6		5,039
2014																123			124			94			69			60			19		5,036
2015																			131			131			104			79			36		4,887
2016																						124			124			109			60		5,185
2017																									120			115			78		4,936
2018																												114			101		3,105

																									Total		$	778		$	305



Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	13	$	24		$	34		$	41		$	43		$	45		$	46		$	47		$	47		$	47
2010				13			34			50			55			57			58			55			52			52
2011							19			42			55			58			60			60			56			57
2012										5			32			34			35			35			36			37
2013													16			40			69			78			78			78
2014																7			30			38			36			38
2015																			7			26			38			40
2016																						5			37			45
2017																									23			37
2018																												5

																									Total		$	436


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																											$	342
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																												7
Liability for unallocated claim adjustment expenses for accident years presented																												30

Total net liability for unpaid claim and claim adjustment expenses																											$	379


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended
December 31																												Total


Accident Year
2009	$	-	$	(11	)	$	(18	)	$	(17	)	$	(9	)	$	(7	)	$	1		$	-		$	(1	)	$	(62	)
2010				-			(1	)		(27	)		(8	)		(10	)		(3	)		(4	)		2			(51	)
2011							1			(5	)		(29	)		(12	)		(5	)		(4	)		(4	)		(58	)
2012										2			(24	)		(28	)		(18	)		(7	)		(6	)		(81	)
2013													1			(6	)		(9	)		(15	)		(4	)		(33	)
2014																1			(30	)		(25	)		(9	)		(63	)
2015																			-			(27	)		(25	)		(52	)
2016																						-			(15	)		(15	)
2017																									(5	)		(5	)

Total net development for the accident years presented above																			(64	)		(82	)		(67	)
Total net development for accident years prior to 2009																			1			1			(3	)
Total unallocated claim adjustment expense development																			-			(3	)		-

Total																		$	(63	)	$	(84	)	$	(70	)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.


*Commercial Auto*
																											December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																														Cumulative
																														Number of
December 31	2009 (a)		2010 (a)			2011 (a)		2012 (a)		2013 (a)		2014 (a)			2015 (a)			2016 (a)			2017 (a)			2018			IBNR			Claims
(In millions, except reported claims data)

Accident Year
2009	$	291	$	276		$	280	$	282	$	285	$	281		$	278		$	276		$	276		$	277		$	-			48,499
2010				267			283		287		291		298			293			289			288			288			1			48,030
2011							268		281		288		302			300			294			294			294			4			47,905
2012									275		289		299			303			307			299			299			6			46,288
2013											246		265			265			249			245			245			7			39,429
2014													234			223			212			205			205			9			33,609
2015																201			199			190			190			22			30,388
2016																			198			186			186			27			30,342
2017																						199			198			45			30,580
2018																									229			118			28,602

																						Total		$	2,411		$	239


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	73	$	130		$	191	$	233	$	261	$	272		$	274		$	274		$	275		$	277
2010				74			141		203		246		271			281			286			287			287
2011							79		145		199		248			274			284			287			289
2012									78		160		220			259			282			285			290
2013											74		135			168			200			225			234
2014													64			102			137			166			187
2015																52			96			130			153
2016																			52			93			126
2017																						58			107
2018																									66

																						Total		$	2,016


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																								$	395
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																									6
Liability for unallocated claim adjustment expenses for accident years presented																									11

Total net liability for unpaid claim and claim adjustment expenses																								$	412


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended December 31																											Total

Accident Year
2009			$	(15	)	$	4	$	2	$	3	$	(4	)	$	(3	)	$	(2	)	$	-		$	1		$	(14	)
2010							16		4		4		7			(5	)		(4	)		(1	)		-			21
2011									13		7		14			(2	)		(6	)		-			-			26
2012											14		10			4			4			(8	)		-			24
2013													19			-			(16	)		(4	)		-			(1	)
2014																(11	)		(11	)		(7	)		-			(29	)
2015																			(2	)		(9	)		-			(11	)
2016																						(12	)		-			(12	)
2017																									(1	)		(1	)

Total net development for the accident years presented above																			(37	)		(41	)		-
Total net development for accident years prior to 2009																			(10	)		4			-
Total unallocated claim adjustment expense development																			-			2			1

Total																		$	(47	)	$	(35	)	$	1

(a) Data presented for these calendar years is required supplemental information, which is unaudited.


*General Liability*
																											December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																														Cumulative
																														Number of
December 31	2009 (a)		2010 (a)		2011 (a)		2012 (a)			2013 (a)			2014 (a)		2015 (a)			2016 (a)			2017 (a)			2018			IBNR			Claims
(In millions, except reported claims data)

Accident Year
2009	$	662	$	716	$	733	$	755		$	752		$	756	$	755		$	754		$	755		$	755		$	16			44,934
2010				646		664		658			709			750		726			697			691			691			24			44,144
2011						591		589			631			677		676			681			670			669			26			39,283
2012								587			611			639		636			619			635			635			46			35,083
2013											650			655		650			655			613			623			51			33,420
2014														653		658			654			631			635			71			27,736
2015																581			576			574			589			122			23,471
2016																			623			659			667			265			23,078
2017																						632			632			412			19,716
2018																									653			553			13,336

																						Total		$	6,549		$	1,586


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	33	$	124	$	305	$	468		$	576		$	625	$	663		$	701		$	721		$	727
2010				27		145		280			429			561		611			642			652			656
2011						28		148			273			411		517			568			602			622
2012								28			132			247		374			454			510			559
2013											31			128		240			352			450			510
2014														31		119			247			376			481
2015																19			110			230			357
2016																			32			163			279
2017																						23			118
2018																									33

																						Total		$	4,342


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																								$	2,207
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																									927
Liability for unallocated claim adjustment expenses for accident years presented																									61

Total net liability for unpaid claim and claim adjustment expenses																								$	3,195


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended December 31																											Total

Accident Year
2009			$	54	$	17	$	22		$	(3	)	$	4	$	(1	)	$	(1	)	$	1		$	-		$	93
2010						18		(6	)		51			41		(24	)		(29	)		(6	)		-			45
2011								(2	)		42			46		(1	)		5			(11	)		(1	)		78
2012											24			28		(3	)		(17	)		16			-			48
2013														5		(5	)		5			(42	)		10			(27	)
2014																5			(4	)		(23	)		4			(18	)
2015																			(5	)		(2	)		15			8
2016																						36			8			44
2017																									-			-

Total net development for the accident years presented above																			(46	)		(31	)		36
Total net development for accident years prior to 2009																			(19	)		(1	)		-
Total unallocated claim adjustment expense development																			-			8			(4	)

																Total		$	(65	)	$	(24	)	$	32

(a) Data presented for these calendar years is required supplemental information, which is unaudited.


*Workers’ Compensation*
																									December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																												Cumulative
																												Number of
December 31	2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)			2016 (a)			2017 (a)			2018			IBNR			Claims
(In millions, except reported claims data)

Accident Year
2009	$	592	$	599	$	609	$	611	$	616	$	626	$	631		$	638		$	649		$	650		$	46			51,822
2010				583		632		654		676		698		710			730			733			732			44			49,106
2011						607		641		647		659		651			676			676			674			27			45,637
2012								601		627		659		669			678			673			671			59			42,477
2013										537		572		592			618			593			582			86			38,665
2014												467		480			479			452			450			104			33,465
2015														422			431			406			408			146			31,828
2016																	426			405			396			171			31,905
2017																				440			432			171			32,811
2018																							450			276			30,399

																				Total		$	5,445		$	1,130


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2009	$	89	$	227	$	321	$	388	$	443	$	476	$	503		$	525		$	549		$	557
2010				97		251		359		442		510		542			577			615			625
2011						99		249		358		438		478			522			564			571
2012								87		232		342		416			470			509			524
2013										80		213		300			370			417			419
2014												61		159			215			258			282
2015														51			131			180			212
2016																	53			129			169
2017																				63			151
2018																							68

																				Total		$	3,578


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																						$	1,867
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009																							2,131
Other (b)																							(32	)
Liability for unallocated claim adjustment expenses for accident years presented																							2

Total net liability for unpaid claim and claim adjustment expenses																						$	3,968


Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended December 31																									Total

Accident Year
2009			$	7	$	10	$	2	$	5	$	10	$	5		$	7		$	11		$	1			58
2010						49		22		22		22		12			20			3			(1	)		149
2011								34		6		12		(8	)		25			-			(2	)		67
2012										26		32		10			9			(5	)		(2	)		70
2013												35		20			26			(25	)		(11	)		45
2014														13			(1	)		(27	)		(2	)		(17	)
2015																	9			(25	)		2			(14	)
2016																				(21	)		(9	)		(30	)
2017																							(8	)		(8	)

Total net development for the accident years presented above																	95			(89	)		(32	)
Adjustment for development on a discounted basis																	(3	)		(3	)		-
Total net development for accident years prior to 2009																	53			28			7
Total unallocated claim adjustment expense development																	-			1			(7	)

Total																$	145		$	(63	)	$	(32	)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.

(b)	Other includes the effect of discounting lifetime claim reserves.

The table below presents information about average historical claims duration as of December 31, 2018 and is presented as required supplementary information, which is unaudited.


Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year:

	1			2			3			4			5			6			7			8			9			10			Total

Medical professional liability		3.8	%		19.7	%		24.3	%		20.1	%		12.1	%		7.2	%		4.5	%		2.5	%		1.0	%		2.9	%		98.1	%
Other professional liability
and management liability		6.2	%		21.5	%		21.3	%		17.4	%		10.7	%		6.4	%		5.8	%		2.9	%		3.3	%		2.1	%		97.6	%
Surety (a)		21.6	%		37.9	%		21.0	%		7.9	%		2.1	%		1.6	%		(1.7	)%		(0.5	)%		-			-			89.9	%
Commercial auto		28.0	%		23.0	%		18.5	%		14.2	%		9.3	%		3.1	%		1.3	%		0.3	%		0.2	%		0.7	%		98.6	%
General liability		4.3	%		15.9	%		19.5	%		20.5	%		15.7	%		8.0	%		5.6	%		3.2	%		1.6	%		0.8	%		95.1	%
Workers’ compensation		13.7	%		21.1	%		13.9	%		10.6	%		7.5	%		4.4	%		4.4	%		3.2	%		2.5	%		1.2	%		82.5	%

(a)	Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables.

A&EP Reserves

In 2010, Continental Casualty Company (“CCC”) together with several of CNA’s insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, CNA ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

In years subsequent to the effective date of the LPT, CNA recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which CNA recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.

The following table presents the impact of the loss portfolio transfer on the Consolidated Statements of Income.


Year Ended December 31	2018			2017			2016

(In millions)

Additional amounts ceded under LPT:
Net A&EP adverse development before consideration of LPT	$	178		$	60		$	200
Provision for uncollectible third-party reinsurance on A&EP		(16	)

Total additional amounts ceded under LPT		162			60			200
Retroactive reinsurance benefit recognized		(114	)		(68	)		(107	)

Pretax impact of deferred retroactive reinsurance	$	48		$	(8	)	$	93

CNA completed reserve reviews in both the first and fourth quarters of 2018 and going forward, intends to perform a single annual review in the fourth quarter. Net unfavorable prior year development of $178 million, $60 million and $200 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2018, 2017 and 2016. Additionally, in 2018, CNA released a portion of its provision for uncollectible third party reinsurance. The 2018 unfavorable development was driven by higher than anticipated defense and indemnity costs on known direct asbestos and environmental accounts and by paid losses on assumed reinsurance exposures. The 2017 unfavorable development of $60 million was driven by modestly higher anticipated payouts on claims from known sources of asbestos exposure. The 2016 unfavorable development of $200 million was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than expected severity on pollution claims.

As of December 31, 2018 and 2017, the cumulative amounts ceded under the LPT were $3.1 billion and $2.9 billion. The unrecognized deferred retroactive reinsurance benefit was $374 million and $326 million as of December 31, 2018 and 2017 and is included within Other liabilities on the Consolidated Balance Sheets.

NICO established a collateral trust account as security for its obligations to CNA. The fair value of the collateral trust account was $2.7 billion and $3.1 billion as of December 31, 2018 and 2017. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to CNA’s A&EP claims.