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Insurance Claim Reserves

12 Months Ended

Dec. 31, 2019

INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:



(at December 31, in millions)	2019		2018
Property-casualty	$	51,836	$	50,653
Accident and health	13		15
Total	$	51,849	$	50,668

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



(at and for the year ended December 31, in millions)	2019		2018			2017
Claims and claim adjustment expense reserves at beginning of year	$	50,653	$	49,633		$	47,929
Less reinsurance recoverables on unpaid losses	8,182		8,123			7,981
Net reserves at beginning of year	42,471		41,510			39,948
Estimated claims and claim adjustment expenses for claims arising in the current year	18,854		18,614			17,846
Estimated increase (decrease) in claims and claim adjustment expenses for claims arising in prior years	164		(406		)	(458		)
Total increases	19,018		18,208			17,388
Claims and claim adjustment expense payments for claims arising in:
Current year	7,734		7,697			7,335
Prior years	10,060		9,363			8,708
Total payments	17,794		17,060			16,043
Unrealized foreign exchange loss (gain)	106		(187		)	217
Net reserves at end of year	43,801		42,471			41,510
Plus reinsurance recoverables on unpaid losses	8,035		8,182			8,123
Claims and claim adjustment expense reserves at end of year	$	51,836	$	50,653		$	49,633

Gross claims and claim adjustment expense reserves at December 31, 2019 increased by $1.18 billion over December 31, 2018, primarily reflecting the impacts of higher volumes of insured exposures and loss cost trends for the current accident year. Gross claims and claim adjustment expense reserves at December 31, 2018 increased by $1.02 billion over December 31, 2017, primarily reflecting the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in 2018, partially offset by the impacts of (iii) payments related to catastrophe losses incurred in 2017 and (iv) net favorable prior year reserve development.

Reinsurance recoverables on unpaid losses at December 31, 2019 decreased by $147 million from December 31, 2018, primarily reflecting a decrease in recoverables related to mandatory pools and associations. Reinsurance recoverables on unpaid losses at December 31, 2018 increased by $59 million over December 31, 2017, primarily reflecting the 2018 impacts of catastrophe losses and the asbestos reserve increase, partially offset by cash collections.

The Company continues to evaluate the impact of recent developments on the estimated realizable value of its subrogation claims related to the 2017 and 2018 California wildfires. Recent developments include (i) the approval of Restructuring Support Agreements (RSAs) by the United States Bankruptcy Court reflecting the settlement of subrogation claims and individual wildfire victim claims against Pacific Gas & Electric Company (PG&E) and a settlement between bondholders and PG&E, and (ii) objections to PG&E's plan of reorganization raised by the Governor of California and others. The RSAs may be terminated if PG&E's plan

of reorganization is not confirmed by June 30, 2020. Due to the risks and uncertainties associated with the PG&E bankruptcy and other factors, the Company has not yet recognized a subrogation benefit related to these claims.

Included in the claims and claim adjustment expense reserves are reserves for long-term disability and annuity claim payments, primarily arising from workers’ compensation insurance and workers’ compensation excess insurance policies, that are discounted to the present value of the estimated future payments. The discount rates used were a range of 3.5% to 5.0% at December 31, 2019 and 5.0% at December 31, 2018. Total reserves net of the discount were $2.48 billion and $2.45 billion, and the related amount of discount was $1.16 billion and $1.16 billion, at December 31, 2019 and 2018, respectively. Accretion of the discount is reported as part of “claims and claim adjustment expenses” in the consolidated statement of income and was $49 million, $49 million and $50 million in 2019, 2018 and 2017, respectively.

Prior Year Reserve Development

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

2019

In 2019, estimated claims and claim adjustment expenses incurred included $164 million of net unfavorable development for claims arising in prior years, including $60 million of net unfavorable prior year reserve development and $49 million of accretion of discount that impacted the Company's results of operations.

Business Insurance. Net unfavorable prior year reserve development in 2019 totaled $258 million, primarily driven by the following:


•	General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment's domestic operations for primary and excess coverages for multiple accident years, including the impact for accident years 2009 and prior related to the enactment of legislation by a number of states that extended the statute of limitations for childhood sexual molestation claims;


•	Commercial automobile - higher than expected loss experience in the segment's domestic operations for recent accident years;


•	Asbestos reserves - an increase of $220 million, primarily in the segment's domestic general liability product line;


•	Commercial multi-peril - higher than expected loss experience in the segment's domestic operations for recent accident years; and


•	Environmental reserves - an increase of $76 million, primarily in the segment's domestic general liability product line,

Partially offset by:


•	Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years; and


•	Commercial property - better than expected loss experience in the segment's domestic operations for recent accident years.

Bond & Specialty Insurance. Net favorable prior year reserve development in 2019 totaled $65 million, primarily driven by better than expected loss experience in the segment's domestic operations in the general liability product line for management liability coverages and in the fidelity and surety product line for multiple accident years.

Personal Insurance. Net favorable prior year reserve development in 2019 totaled $133 million, primarily driven by better than expected loss experience in the segment's domestic operations in the automobile and homeowners and other product lines for recent accident years.

2018

In 2018, estimated claims and claim adjustment expenses incurred included $406 million of net favorable development for claims arising in prior years, including $517 million of net favorable prior year reserve development and $49 million of accretion of discount that impacted the Company's results of operations.

Business Insurance. Net favorable prior year reserve development in 2018 totaled $142 million, primarily driven by the following:


•	Workers' compensation - better than expected loss experience in the segment’s domestic operations for multiple accident years; and


•	Commercial property - better than expected loss experience in the segment’s domestic operations for recent accident years,

Partially offset by:


•	Commercial automobile - higher than expected loss experience for recent accident years;


•	Asbestos reserves - an increase of $225 million, primarily in the segment's domestic general liability product line;


•	General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment's domestic operations for both primary and excess coverages for multiple accident years; and


•	Environmental reserves - an increase of $55 million, primarily in the segment's domestic general liability product line.

Bond & Specialty Insurance. Net favorable prior year reserve development in 2018 totaled $266 million, primarily driven by better than expected loss experience in the segment’s domestic operations in the general liability product line for management liability coverages for multiple accident years.

Personal Insurance. Net favorable prior year reserve development in 2018 totaled $109 million, primarily driven by better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years.

2017

In 2017, estimated claims and claim adjustment expenses incurred included $458 million of net favorable development for claims arising in prior years, including $592 million of net favorable prior year reserve development and $50 million of accretion of discount that impacted the Company's results of operations.

Business Insurance. Net favorable prior year reserve development in 2017 totaled $439 million, primarily driven by the following:


•	Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years;


•	General liability (excluding an increase to asbestos and environmental reserves) - better than expected loss experience in the segment's domestic operations for both primary and excess coverages for multiple accident years; and


•	Commercial multi-peril - better than expected loss experience for liability coverages for multiple accident years,

Partially offset by:


•	Asbestos reserves - an increase of $225 million, primarily in the segment's domestic general liability product line;


•	Commercial automobile - higher than expected loss experience for recent accident years;


•	Environmental reserves - an increase of $65 million, primarily in the segment's domestic general liability product line; and


•	International and other - higher than expected loss experience in Europe primarily due to the U.K. Ministry of Justice’s “Ogden” discount rate adjustment applied to lump sum bodily injury payouts.

Bond & Specialty Insurance. Net favorable prior year reserve development in 2017 totaled $140 million, primarily driven by better than expected loss experience in the segment’s domestic operations in the general liability product line for management liability coverages for multiple accident years.

Personal Insurance. Net favorable prior year reserve development in 2017 was not significant and totaled $13 million.

Claims Development

The following is a summary of claims and claim adjustment expense reserves, including certain components, for the Company’s major product lines by reporting segment at December 31, 2019.



(at December 31, 2019, in millions)	Net Undiscounted Claims and Claim Adjustment Expense Reserves		Discount (Net of Reinsurance)			Subtotal: Net Claims and Claim Adjustment Expense Reserves		Reinsurance Recoverables on Unpaid Losses (4)			Claims and Claim Adjustment Expense Reserves
Business Insurance
General liability	$	7,749	$	(172	)	$	7,577	$	842		$	8,419
Commercial property	887		—			887		389			1,276
Commercial multi-peril	3,784		—			3,784		175			3,959
Commercial automobile	3,237		—			3,237		259			3,496
Workers’ compensation ⁽¹⁾	16,184		(911		)	15,273		745			16,018
Bond & Specialty Insurance
General liability	1,824		—			1,824		108			1,932
Fidelity and surety	399		—			399		4			403
Personal Insurance
Automobile	2,862		—			2,862		486			3,348
Homeowners (excluding Other)	1,168		—			1,168		57			1,225
International - Canada	739		—			739		19			758
Subtotal — claims and allocated claim adjustment expenses for the products presented in the development tables below	38,833		(1,083		)	37,750		3,084			40,834
Other insurance contracts ⁽²⁾	3,895		(5		)	3,890		1,968			5,858
Unallocated loss adjustment expense reserves	2,104		—			2,104		39			2,143
Structured settlements ⁽³⁾	—		—			—		2,965			2,965
Other	57		—			57		(21		)	36
Total property-casualty	44,889		(1,088		)	43,801		8,035			51,836
Accident and health	—		—			—		13			13
Total	$	44,889	$	(1,088	)	$	43,801	$	8,048		$	51,849

___________________________________________


(1)	Net discount amount includes discount of $67 million on reinsurance recoverables for long-term disability and annuity claim payments.


(2)	Primarily includes residual market, international (other than operations in Canada within the Personal Insurance segment) and runoff assumed reinsurance business.


(3)	Includes structured settlements in cases where the Company did not receive a release from the claimant.


(4)	Total reinsurance recoverables (on paid and unpaid losses) at December 31, 2019 were $8.24 billion.

The claim development tables that follow present, by accident year, incurred and cumulative paid claims and allocated claim adjustment expense on a historical basis. This claim development information is presented on an undiscounted, net of reinsurance basis for ten years, or the number of years for which claims incurred typically remain outstanding if less than ten years. The claim development tables also provide the historical average annual percentage payout of incurred claims by age, net of reinsurance, as supplementary information (identified as unaudited in the tables below). For Personal Insurance - International - Canada, the claim development information reflects the acquisition of The Dominion of Canada General Insurance Company (Dominion) in November 2013 on a retrospective basis (includes Dominion data for years prior to the Company’s acquisition of Dominion).

Business Insurance

General Liability



	(dollars in millions)
	For the Years Ended December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Unaudited
Accident Year																					IBNR Reserves Dec 31, 2019		Cumulative Number of Reported Claims
2010	$	1,028	$	1,031	$	1,021	$	959	$	927	$	912	$	918	$	908	$	911	$	900	$	62	27,993
2011			1,004		1,074		1,065		998		972		935		913		908		922		69		27,557
2012					989		985		935		913		892		905		917		920		78		24,920
2013							965		975		958		940		927		933		975		104		22,625
2014									976		989		983		948		956		1,013		159		22,319
2015											998		956		923		967		1,057		165		21,360
2016													1,075		1,058		1,087		1,187		359		19,997
2017															1,133		1,143		1,196		530		18,014
2018																	1,253		1,312		841		16,694
2019																			1,447		1,231		12,167
																	Total		$	10,929



	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
2010	$	35	$	139	$	324	$	487	$	629	$	702	$	756	$	781	$	800	$	814
2011			47		187		355		539		660		725		762		799		819
2012					32		150		295		489		589		699		754		811
2013							35		175		363		498		639		745		816		Liability for Claims
2014									37		163		321		515		640		750		And Allocated Claim
2015											36		137		336		558		740		Adjustment Expenses,
2016													35		191		421		649		Net of Reinsurance
2017															40		180		378
2018																	42		202		2010 -		Before
2019																			51		2019		2010
																	Total		$	6,030	$	4,899	$	2,850
																			Total net liability				$	7,749



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	3.6	%	12.6	%	18.0	%	18.9	%	14.0	%	9.8	%	5.8	%	4.3	%	2.1	%	1.6	%

Commercial Property



	(dollars in millions)
	For the Years Ended December 31,
	2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
Accident Year											IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
2015	$	786	$	750	$	741	$	731	$	737	$	8	20,162
2016			896		863		820		809		11		22,313
2017					1,209		1,177		1,151		11		25,066
2018							1,093		1,079		10		24,785
2019									1,069		84		22,186
							Total		$	4,845



	Cumulative Paid Claims and Allocated Claim
	Adjustment Expenses, Net of Reinsurance
	Unaudited
											Liability for Claims
Accident Year											And Allocated Claim
2015	$	376	$	615	$	681	$	699	$	717	Adjustment Expenses,
2016			441		685		745		767		Net of Reinsurance
2017					618		1,003		1,073
2018							561		928		2015 -		Before
2019									610		2019		2015
							Total		$	4,095	$	750	$	137
									Total net liability				$	887



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5
	53.6	%	32.6	%	7.5	%	2.5	%	2.5	%

Commercial Multi-Peril



	(dollars in millions)
	For the Years Ended December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Unaudited
Accident Year																					IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
2010	$	1,711	$	1,826	$	1,832	$	1,861	$	1,895	$	1,892	$	1,898	$	1,885	$	1,881	$	1,868	$	19	112,074
2011			2,235		2,244		2,269		2,286		2,296		2,287		2,283		2,279		2,272		25		125,867
2012					1,885		1,883		1,903		1,888		1,888		1,867		1,859		1,854		34		104,921
2013							1,615		1,623		1,620		1,609		1,591		1,600		1,599		38		83,818
2014									1,663		1,627		1,625		1,617		1,626		1,627		50		78,292
2015											1,568		1,625		1,593		1,597		1,606		92		71,635
2016													1,662		1,623		1,598		1,590		122		68,888
2017															1,872		1,928		1,956		266		71,220
2018																	1,976		2,114		416		68,403
2019																			2,017		715		70,798
																	Total		$	18,503



	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
2010	$	709	$	1,180	$	1,395	$	1,579	$	1,698	$	1,763	$	1,798	$	1,819	$	1,834	$	1,840
2011			1,060		1,573		1,803		1,979		2,088		2,156		2,193		2,222		2,234
2012					795		1,246		1,424		1,590		1,699		1,752		1,780		1,804
2013							644		987		1,167		1,304		1,410		1,475		1,516		Liability for Claims
2014									628		956		1,154		1,328		1,448		1,512		And Allocated Claim
2015											595		970		1,144		1,310		1,409		Adjustment Expenses,
2016													585		950		1,133		1,278		Net of Reinsurance
2017															716		1,199		1,388
2018																	792		1,302		2010 -		Before
2019																			707		2019		2010
																	Total		$	14,990	$	3,513	$	271
																			Total net liability				$	3,784



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	38.9	%	23.2	%	10.8	%	9.3	%	6.2	%	3.5	%	1.9	%	1.3	%	0.7	%	0.3	%

Commercial Automobile



	(dollars in millions)
	For the Years Ended December 31,
	2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claims Adjustment
	Expenses, Net of Reinsurance
	Unaudited
Accident Year											IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
2015	$	1,188	$	1,202	$	1,234	$	1,283	$	1,298	$	48	173,545
2016			1,278		1,303		1,371		1,409		94		183,114
2017					1,386		1,501		1,524		219		191,166
2018							1,645		1,742		469		201,578
2019									1,835		838		167,863
							Total		$	7,808



	Cumulative Paid Claims and Allocated Claim
	Adjustment Expenses, Net of Reinsurance
	Unaudited
											Liability for Claims
Accident Year											And Allocated Claim
2015	$	405	$	650	$	885	$	1,058	$	1,181	Adjustment Expenses,
2016			412		688		931		1,158		Net of Reinsurance
2017					456		746		1,027
2018							515		848		2015 -		Before
2019									539		2019		2015
							Total		$	4,753	$	3,055	$	182
									Total net liability				$	3,237



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5
	29.8	%	19.2	%	17.9	%	14.7	%	9.5	%

Workers’ Compensation



	(dollars in millions)
	For the Years Ended December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Unaudited
Accident Year																					IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
2010	$	1,886	$	2,042	$	2,035	$	2,056	$	2,049	$	2,052	$	2,055	$	2,021	$	2,003	$	1,984	$	248	117,466
2011			2,284		2,303		2,347		2,350		2,379		2,385		2,363		2,348		2,320		319		136,801
2012					2,447		2,456		2,457		2,456		2,445		2,453		2,416		2,387		367		138,034
2013							2,553		2,545		2,540		2,506		2,463		2,423		2,354		408		134,091
2014									2,554		2,553		2,547		2,476		2,430		2,393		486		129,293
2015											2,644		2,585		2,505		2,441		2,372		636		123,163
2016													2,768		2,690		2,569		2,473		702		122,944
2017															2,779		2,681		2,584		918		120,900
2018																	2,744		2,687		1,180		121,460
2019																			2,680		1,619		107,298
																	Total		$	24,234



	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
2010	$	341	$	750	$	978	$	1,133	$	1,246	$	1,321	$	1,385	$	1,430	$	1,465	$	1,490
2011			420		911		1,185		1,365		1,487		1,583		1,652		1,696		1,732
2012					443		940		1,217		1,394		1,536		1,629		1,689		1,735
2013							458		954		1,237		1,413		1,525		1,604		1,659		Liability for Claims
2014									455		944		1,224		1,399		1,505		1,581		And Allocated Claim
2015											430		893		1,154		1,310		1,411		Adjustment Expenses,
2016													421		873		1,118		1,272		Net of Reinsurance
2017															433		890		1,154
2018																	440		919		2010 -		Before
2019																			466		2019		2010
																	Total		$	13,419	$	10,815	$	5,369
																			Total net liability				$	16,184



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	17.8	%	19.7	%	11.2	%	7.2	%	5.1	%	3.7	%	2.8	%	2.0	%	1.7	%	1.3	%

Bond & Specialty Insurance

General Liability



	(dollars in millions)
	For the Years Ended December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Unaudited
Accident Year																					IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
2010	$	571	$	612	$	679	$	679	$	661	$	668	$	653	$	653	$	657	$	660	$	16	5,677
2011			565		596		639		632		601		545		520		508		506		2		5,213
2012					538		591		614		605		601		599		605		593		60		4,865
2013							510		565		606		630		654		607		586		42		4,456
2014									549		571		563		518		473		452		32		4,356
2015											528		524		486		437		395		38		4,195
2016													512		511		504		520		91		4,326
2017															534		517		526		174		4,455
2018																	530		548		243		4,393
2019																			588		432		3,400
																	Total		$	5,374



	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
2010	$	33	$	152	$	291	$	396	$	482	$	565	$	597	$	623	$	631	$	635
2011			33		143		249		324		414		447		476		490		496
2012					38		160		255		342		383		419		436		453
2013							34		154		252		352		400		434		451		Liability for Claims
2014									38		150		239		312		367		407		And Allocated Claim
2015											38		141		234		310		338		Adjustment Expenses,
2016													30		141		233		313		Net of Reinsurance
2017															38		155		262
2018																	49		182		2010 -		Before
2019																			51		2019		2010
																	Total		$	3,588	$	1,786	$	38
																			Total net liability				$	1,824



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	7.2	%	22.1	%	19.5	%	16.2	%	10.9	%	7.9	%	4.1	%	3.1	%	1.2	%	0.6	%

Fidelity and Surety



	(dollars in millions)
	For the Years Ended December 31,
	2015		2016		2017		2018		2019		IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
	Incurred Claims and Allocated Claims Adjustment
	Expenses, Net of Reinsurance
Accident Year	Unaudited
2015	$	217	$	191	$	179	$	145	$	137	$	32	834
2016			226		239		205		208		9		886
2017					244		271		240		22		905
2018							220		235		22		849
2019									203		116		592
							Total		$	1,023



	Cumulative Paid Claims and Allocated Claim
	Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited										Liability for Claims
											And Allocated Claim
2015	$	32	$	75	$	87	$	86	$	88	Adjustment Expenses,
2016			54		121		142		149		Net of Reinsurance
2017					70		166		194
2018							64		171		2015 -		Before
2019									49		2019		2015
							Total		$	651	$	372	$	27
									Total net liability				$	399



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5
	26.0	%	37.3	%	10.1	%	1.3	%	1.3	%

Personal Insurance

Automobile



	(dollars in millions)
	For the Years Ended December 31,
	2015		2016		2017		2018		2019		IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
	Incurred Claims and Allocated Claims Adjustment
	Expenses, Net of Reinsurance
Accident Year	Unaudited
2015	$	2,186	$	2,244	$	2,236	$	2,222	$	2,219	$	11	757,972
2016			2,779		2,791		2,772		2,752		44		922,014
2017					3,323		3,256		3,221		139		1,061,907
2018							3,281		3,269		347		1,048,084
2019									3,362		858		940,933
							Total		$	14,823



	Cumulative Paid Claims and Allocated Claim
	Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited										Liability for Claims
											And Allocated Claim
2015	$	1,319	$	1,768	$	1,985	$	2,109	$	2,174	Adjustment Expenses,
2016			1,610		2,203		2,466		2,616		Net of Reinsurance
2017					1,912		2,575		2,887
2018							1,889		2,582		2015 -		Before
2019									1,933		2019		2015
							Total		$	12,192	$	2,631	$	231
									Total net liability				$	2,862



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5
	58.5	%	20.9	%	9.7	%	5.5	%	2.9	%

Homeowners (excluding Other)



	(dollars in millions)
	For the Years Ended December 31,
	2015		2016		2017		2018		2019		IBNR Reserves December 31, 2019		Cumulative Number of Reported Claims
	Incurred Claims and Allocated Claims Adjustment
	Expenses, Net of Reinsurance
Accident Year	Unaudited
2015	$	1,438	$	1,454	$	1,461	$	1,452	$	1,443	$	1	145,136
2016			1,556		1,547		1,525		1,511		8		143,949
2017					2,312		2,340		2,343		49		169,085
2018							2,610		2,574		112		185,384
2019									2,297		447		158,328
							Total		$	10,168



	Cumulative Paid Claims and Allocated Claim
	Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited										Liability for Claims
											And Allocated Claim
2015	$	994	$	1,333	$	1,395	$	1,421	$	1,429	Adjustment Expenses,
2016			1,049		1,392		1,455		1,479		Net of Reinsurance
2017					1,471		2,059		2,197
2018							1,657		2,298		2015 -		Before
2019									1,613		2019		2015
							Total		$	9,016	$	1,152	$	16
									Total net liability				$	1,168



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5
	67.1	%	24.1	%	4.8	%	1.7	%	0.6	%

International - Canada



	(dollars in millions)
	For the Years Ended December 31,																				IBNR Reserves December 31, 2019			Cumulative
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019					Number of
Accident	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																							Reported
Year	Unaudited																							Claims
2010	$	487	$	488	$	499	$	514	$	501	$	493	$	489	$	482	$	481	$	477	$	1		54,938
2011			459		438		446		441		434		427		422		417		408		(5		)	55,773
2012					435		413		414		398		397		380		374		362		(2		)	51,208
2013							485		478		469		457		444		443		433		—			54,251
2014									429		444		445		433		426		423		(9		)	52,268
2015											361		360		360		356		358		10			45,203
2016													361		409		409		419		19			45,759
2017															346		381		403		34			46,769
2018																	440		462		64			50,302
2019																			445		110			44,796
																	Total		$	4,190



Accident	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Year	Unaudited
2010	$	191	$	292	$	329	$	369	$	400	$	430	$	447	$	459	$	465		$	468
2011			176		249		280		314		349		371		389		397			401
2012					165		231		262		288		316		333		342			347
2013							194		272		304		336		369		387			405		Liability for Claims
2014									189		265		302		331		362			384		And Allocated Claim
2015											162		226		253		282			307		Adjustment Expenses,
2016													211		283		310			343		Net of Reinsurance
2017															182		257			296
2018																	219			305		2010 -		Before
2019																				216		2019		2010
																	Total			$	3,472	$	718	$	21
																			Total net liability					$	739



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	45.5	%	18.4	%	8.0	%	7.8	%	7.4	%	5.2	%	3.6	%	1.9	%	1.1	%	0.7	%

The incurred and paid amounts have been translated from the local currency to U.S. dollars using the December 31, 2019 spot rate for all years presented in the table above in order to isolate changes in foreign exchange rates from loss development.

Methodology for Estimating Incurred But Not Reported (IBNR) Reserves

Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported (IBNR) as of the balance sheet date. Claims and claim adjustment expense reserves do not represent an exact calculation of the liability, but instead represent management estimates, primarily utilizing actuarial expertise and projection methods that develop estimates for the ultimate cost of claims and claim adjustment expenses. Because the establishment of claims and claims adjustment expense reserves is an inherently uncertain process involving estimates and judgment, currently estimated claims and claim adjustment expense reserves may change. The Company reflects changes to the reserves in the results of operations in the period the estimates are changed.

Cumulative amounts paid and case reserves held as of the balance sheet date are subtracted from the estimate of the ultimate cost of claims and claim adjustment expenses to derive incurred but not reported (IBNR) reserves. Accordingly, IBNR reserves include the cost of unreported claims, development on known claims and re-opened claims. This approach to estimating IBNR reserves has been in place for many years, with no material changes in methodology in the past year.

Detailed claim data is typically insufficient to produce a reliable indication of the initial estimate for ultimate claims and claim adjustment expenses for an accident year. As a result, the initial estimate for an accident year is generally based on an exposure-based method using either the loss ratio projection or the expected loss method. The loss ratio projection method, which is typically used for guaranteed-cost business, develops an initial estimate of ultimate claims and claim adjustment expenses for an accident year by multiplying earned premium for the accident year by a projected loss ratio. The projected loss ratio is determined by analyzing prior period experience, and adjusting for loss cost trends, rate level differences, mix of business changes and other known or observed factors influencing the accident year relative to prior accident years. The expected loss method, which is typically used for loss sensitive business, develops an initial estimate of ultimate claims and claim adjustment expenses for an accident year by analyzing exposures by account.

For prior accident years, the following estimation and analysis methods are principally used by the Company’s actuaries to estimate the ultimate cost of claims and claim adjustment expenses. These estimation and analysis methods are typically referred to as conventional actuarial methods.


•	The paid loss development method assumes that the future change (positive or negative) in cumulative paid losses for a given cohort of claims will occur in a stable, predictable pattern from year-to-year, consistent with the pattern observed in past cohorts.


•	The case incurred development method is the same as the paid loss development method but is based on cumulative case-incurred losses rather than paid losses.

•

The Bornhuetter-Ferguson method uses an initial estimate of ultimate losses for a given product line reserve component, typically expressed as a ratio to earned premium. The method assumes that the ratio of additional claim activity to earned premium for that component is relatively stable and predictable over time and that actual claim activity to date is not a credible predictor of further activity for that component. The method is used most often for more recent accident years where claim data is sparse and/or volatile, with a transition to other methods as the underlying claim data becomes more voluminous and therefore more credible.

•

The average value analysis combined with the reported claim development method assumes that average claim values are stable and predictable over time for a particular cohort of claims. It is typically limited to analysis at more granular levels, such as coverage or hazard/peril, where a more homogeneous subset of claims produce a more stable and fairly predictable average value. The reported claim development method is the same as the paid loss development method but uses changes in cumulative claim counts to produce estimates of ultimate claim counts rather than ultimate dollars. The resulting estimate of ultimate claim counts by cohort is multiplied by an average value per claim from an average value analysis to obtain estimated ultimate claims and claim adjustment expenses.

While these are the principal methods utilized, the Company’s actuaries have available to them the full range of actuarial methods developed by the casualty actuarial profession. The Company’s actuaries are also continually monitoring developments within the profession for advances in existing techniques or the creation of new techniques that might improve current and future estimates. Most actuarial methods assume that past patterns demonstrated in the data will repeat themselves in the future. For certain reserve components where this assumption may not hold, such as asbestos and environmental reserves, conventional actuarial methods are not utilized by the Company.

Methodology for Determining Cumulative Number of Reported Claims

A claim file is created when the Company is notified of an actual demand for payment, notified of an event that may lead to a demand for payment or when it is determined that a demand for payment could possibly lead to a future demand for payment on another coverage on the same policy or on another policy. Claim files are generally created for a policy at the claimant by coverage level, depending on the particular facts and circumstances of the underlying event.

For Business Insurance and for Personal Insurance, claim file information is summarized such that the Company generally recognizes one count for each policy claim event by internal regulatory line of business, regardless of the number of claimants or coverages involved. The claims counts are then accumulated and reported by product line. While the methodology is generally consistent within each segment for the product lines displayed, there are some minor differences between and within segments. For Bond & Specialty Insurance, the Company generally recognizes one count per coverage per policy claim event and one count per bond per surety claim event.

For purposes of the claims development tables above, claims reported for direct business are counted even if they eventually close with no loss payment, except in the case of (i) deductible business, where the claim is not counted until the case incurred claim estimate is above the deductible and (ii) International-Canada reported claim counts where claims closed with no loss payment are not counted. Note that claims with zero claim dollars may still generate some level of claim adjustment expenses. Claim counts for assumed business are included only to the extent such counts are available. The Company generally does not receive claim count information for which the underlying claim activity is handled by others, including pools and associations. The Company does not generate claim counts for ceded business. The methods used to summarize claim counts have not changed significantly over the time periods reported in the tables above.

The Company cautions against using the summarized claim count information provided in this disclosure in attempting to project ultimate loss payouts by product line. The Company generally finds claim count data to be useful only on a more granular basis than the aggregated basis disclosed in the claim development tables above, as the risks, average values and other dynamics of the claim process can vary materially by the cause of loss and coverage within product line. For example, in Personal Automobile, the introduction of roadside assistance coverage resulted in a significant increase in claim counts with a low average claim cost. For this reason the Company varies its approach to, and in many cases the level of aggregation for, counting claims for internal analysis purposes depending on the particular granular analysis performed.

Asbestos and Environmental Reserves

At December 31, 2019 and 2018, the Company’s claims and claim adjustment expense reserves included $1.60 billion and $1.62 billion, respectively, for asbestos and environmental-related claims, net of reinsurance.

It is difficult to estimate the reserves for asbestos and environmental-related claims due to the vagaries of court coverage decisions, plaintiffs’ expanded theories of liability, the risks inherent in complex litigation and other uncertainties, including, without limitation, those which are set forth below.

Asbestos Reserves. Because each policyholder presents different liability and coverage issues, the Company generally reviews the exposure presented by each policyholder at least annually. Among the factors which the Company may consider in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated claim adjustment expense; the potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether or not an asbestos claim is a products/completed operation claim subject to an aggregate limit and the available coverage, if any, for that claim.

In the third quarter of 2019, the Company completed its annual in-depth asbestos claim review, including a review of active policyholders and litigation cases for potential product and “non-product” liability, and noted the continuation of the following trends:


•	a high level of litigation activity in certain jurisdictions involving individuals alleging serious asbestos-related illness, primarily involving mesothelioma claims;


•	while overall payment patterns have been generally stable, there has been an increase in severity for certain policyholders due to the high level of litigation activity; and


•	a moderate level of asbestos-related bankruptcy activity.

In the home office and field office category, which accounts for the vast majority of policyholders with active asbestos-related claims, the number of policyholders with open asbestos claims and net asbestos-related payments were comparable with 2018. Payments on behalf of policyholders in this category continue to be influenced by a high level of litigation activity in a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue to target defendants who were not traditionally primary targets of asbestos litigation.

The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. The Company also analyzes developing payment patterns among policyholders in the home office and field office category and the assumed reinsurance and other category as well as projected reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized to establish asbestos reserves and the Company’s evaluations have not resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment.

The completion of these reviews and analyses in 2019, 2018 and 2017 resulted in $220 million, $225 million and $225 million increases, respectively, to the Company’s net asbestos reserves. In each year, the reserve increases were primarily driven by increases in the Company’s estimate of projected settlement and defense costs related to a broad number of policyholders in the home office and field office category. The increase in the estimate of projected settlement and defense costs resulted from payment trends that continue to be higher than previously anticipated due to the impact of the current litigation environment surrounding mesothelioma claims discussed above. Over the past decade, the property and casualty insurance industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying asbestos environment is essentially unchanged from recent periods and there remains a high degree of uncertainty with respect to future exposure to asbestos claims.

Net asbestos paid loss and loss expenses in 2019, 2018 and 2017 were $224 million, $225 million and $271 million, respectively. Approximately 4%, 9% and 4% of total net paid losses in 2019, 2018 and 2017, respectively, related to policyholders with whom the Company entered into settlement agreements that limit those policyholders' ability to present future claims to the Company.

Environmental Reserves. In establishing environmental reserves, the Company evaluates the exposure presented by each policyholder and the anticipated cost of resolution, if any. These claims are mainly brought pursuant to various state or federal statutes that require a liable party to undertake or pay for environmental remediation. Liability under these statutes may be joint and several with other responsible parties. In the course of its analysis, the Company generally considers the probable liability, available coverage and relevant judicial interpretations. In addition, the Company considers the many variables presented, such as: the nature of the alleged activities of the policyholder at each site; the number of sites; the total number of potentially responsible parties at each site; the nature of the alleged environmental harm and the corresponding remedy at each site; the nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the insurance relationship between the Company and the policyholder, including the role of any umbrella or excess insurance the Company has issued to the policyholder; the involvement of other insurers; the potential for other available coverage, including the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any resolution process; and the applicable law in each jurisdiction. The evaluation of the exposure presented by a policyholder can change as information concerning that policyholder and the many variables presented is developed. Conventional actuarial methods are not used to estimate these reserves.

The Company continues to receive notices from policyholders tendering claims for the first time, frequently under policies issued prior to the mid-1980s. These policyholders continue to present smaller exposures, have fewer sites and are lower tier defendants. Further, in many instances, clean-up costs have been reduced because regulatory agencies are willing to accept risk-based site analyses and more efficient clean-up technologies. Over the past several years, the Company has experienced generally favorable trends in the number of new policyholders tendering environmental claims for the first time and in the number of pending declaratory judgment actions relating to environmental matters. However, the degree to which those favorable trends have continued has been less than anticipated. In addition, reserve development on existing environmental claims as well as the costs associated with coverage litigation on environmental matters has been greater than anticipated, driven by claims and legal developments in a limited number of jurisdictions. As a result of these factors, in 2019, 2018 and 2017, the Company increased its net environmental reserves by $76 million, $55 million and $65 million, respectively.

Asbestos and Environmental Reserves. As a result of the processes and procedures discussed above, management believes that the reserves carried for asbestos and environmental claims are appropriately established based upon known facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. Changes in the legal, regulatory and legislative environment may impact the future resolution of asbestos and environmental claims and result in adverse loss reserve development. The emergence of a greater number of asbestos or environmental claims beyond that which is anticipated may result in adverse loss reserve development. Changes in applicable legislation and future court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos claims, could affect the settlement of asbestos and environmental claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other parties and require court approval to be effective. As part of its continuing analysis of asbestos and environmental reserves, the Company continues to study the implications of these and other developments.

Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current reserves. In addition, the Company’s estimate of claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s operating results in future periods.

Catastrophe Exposure

The Company has geographic exposure to catastrophe losses, which include hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions, solar flares and other naturally-occurring events. Catastrophes can also result from terrorist attacks and other intentionally destructive acts including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, wildfires and cyber attacks may produce significant damage in larger areas, especially those that are heavily populated. The Company generally seeks to mitigate its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance.

There are also risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of reserves related to hurricanes can be affected by the inability of the Company and its insureds to access portions of the impacted areas, the complexity of factors contributing to the losses, the legal and regulatory uncertainties and the nature of the information available to establish the reserves. Complex factors include, but are not limited to: determining whether damage was caused by flooding versus wind; evaluating general liability and pollution exposures; estimating additional living expenses; the impact of demand surge; the potential impact of changing climate conditions, including higher frequency and severity of weather-related events; infrastructure disruption; fraud; the effect of mold damage and business income interruption costs; and reinsurance collectibility. The timing of a catastrophe’s occurrence, such as at or near the end of a reporting period, can also affect the information available to the Company in estimating reserves for that reporting period. The estimates related to catastrophes are adjusted as actual claims emerge.