Insurance Claim Reserves

9 Months Ended

Sep. 30, 2019

INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:



(in millions)	September 30, 2019		December 31, 2018
Property-casualty	$	51,598	$	50,653
Accident and health	14		15
Total	$	51,612	$	50,668

The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses:



	Nine Months Ended September 30,
(in millions)	2019		2018
Claims and claim adjustment expense reserves at beginning of year	$	50,653	$	49,633
Less reinsurance recoverables on unpaid losses	8,182		8,123
Net reserves at beginning of year	42,471		41,510

Estimated claims and claim adjustment expenses for claims arising in the current year	14,193		13,707
Estimated increase (decrease) in claims and claim adjustment expenses for claims arising in prior years	214		(255		)
Total increases	14,407		13,452

Claims and claim adjustment expense payments for claims arising in:
Current year	5,174		5,112
Prior years	8,034		7,419
Total payments	13,208		12,531
Unrealized foreign exchange (gain) loss	12		(82		)
Net reserves at end of period	43,682		42,349
Plus reinsurance recoverables on unpaid losses	7,916		8,066
Claims and claim adjustment expense reserves at end of period	$	51,598	$	50,415

Gross claims and claim adjustment expense reserves at September 30, 2019 increased by $945 million from December 31, 2018, primarily reflecting the impact of higher volumes of insured exposures, loss cost trends for the current accident year and net unfavorable prior year reserve development.

Reinsurance recoverables on unpaid losses at September 30, 2019 decreased by $266 million from December 31, 2018, primarily reflecting the impact of cash collections in the first nine months of 2019.

The Company continues to evaluate the estimated realizable value of its subrogation claims related to the 2017 and 2018 California wildfires and the impact of recent developments, including the Restructuring Support Agreement dated as of September 22, 2019 reflecting a proposed settlement of subrogation claims against Pacific Gas & Electric Company (PG&E) and the recent re-

organization proposals by various stakeholders in the PG&E bankruptcy. Due to the risks and uncertainties associated with the PG&E bankruptcy and other factors, the Company has not recognized a subrogation benefit related to these claims.

Prior Year Reserve Development

The following disclosures regarding reserve development are on a “net of reinsurance” basis.

For the nine months ended September 30, 2019 and 2018, estimated claims and claim adjustment expenses incurred included $(214) million and $255 million, respectively, of net favorable (unfavorable) development for claims arising in prior years, including $(120) million and $350 million, respectively, of net favorable (unfavorable) prior year reserve development and $37 million of accretion of discount in each period that impacted the Company's results of operations.

Business Insurance. Net unfavorable prior year reserve development in the third quarter of 2019 totaled $316 million, primarily driven by (i) a $220 million increase to asbestos reserves, and higher than expected loss experience in the segment's domestic operations in (ii) the general liability product line (excluding the increase to asbestos reserves) for both primary and excess coverages for multiple accident years and (iii) the commercial automobile product line for recent accident years, partially offset by (iv) better than expected loss experience in the segment's domestic operations in the workers’ compensation product line for recent accident years. Net unfavorable prior year reserve development in the third quarter of 2018 totaled $56 million, primarily driven by (i) a $225 million increase to asbestos reserves and (ii) higher than expected loss experience in the segment's domestic operations in the commercial automobile product line for recent accident years, partially offset by (iii) better than expected loss experience in the segment's domestic operations in the workers’ compensation product line for multiple accident years.

Net unfavorable prior year reserve development in the first nine months of 2019 totaled $266 million, primarily driven by (i) higher than expected loss experience in the segment's domestic operations in the general liability product line (excluding increases to asbestos and environmental reserves) for primary and excess coverages for multiple accident years, including the impact for accident years 2009 and prior of the enactment of legislation by a number of states, which extended the statute of limitations for childhood sexual molestation claims, (ii) the $220 million increase to asbestos reserves, (iii) higher than expected loss experience in the segment's domestic operations in the commercial automobile product line for recent accident years, (iv) a $68 million increase to environmental reserves and (v) higher than expected loss experience in the segment's domestic operations in the commercial multi-peril product line for recent accident years, partially offset by better than expected loss experience in the segment's domestic operations in (vi) the workers’ compensation product line for multiple accident years and (vii) the commercial property product line for recent accident years. Net favorable prior year reserve development in the first nine months of 2018 totaled $94 million, primarily driven by better than expected loss experience in the segment's domestic operations in (i) the workers' compensation product line for multiple accident years and (ii) the commercial property product line for recent accident years, partially offset by (iii) a $225 million increase to asbestos reserves, (iv) higher than expected loss experience in the segment's domestic operations in the commercial automobile product line for recent accident years and (v) a $55 million increase to environmental reserves.

Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter and first nine months of 2019 totaled $3 million and $45 million, respectively, and net favorable prior year reserve development in the third quarter and first nine months of 2018 totaled $53 million and $177 million, respectively. Net favorable prior year reserve development in all periods was primarily driven by better than expected loss experience in the segment's domestic operations in the general liability product line for multiple accident years.

Personal Insurance. Net favorable prior year reserve development in the third quarter and first nine months of 2019 totaled $19 million and $101 million, respectively, primarily driven by better than expected loss experience in the segment's domestic operations in both the automobile and homeowners and other product lines for recent accident years. Net favorable prior year reserve development in the third quarter and first nine months of 2018 totaled $17 million and $79 million, respectively, primarily driven by better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years.