Insurance Claim Reserves

3 Months Ended

Mar. 31, 2020

INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:



(in millions)	March 31, 2020		December 31, 2019
Property-casualty	$	51,944	$	51,836
Accident and health	13		13
Total	$	51,957	$	51,849

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



	Three Months Ended March 31,
(in millions)	2020			2019
Claims and claim adjustment expense reserves at beginning of year	$	51,836		$	50,653
Less reinsurance recoverables on unpaid losses	8,035			8,182
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020	53			—
Net reserves at beginning of year	43,854			42,471

Estimated claims and claim adjustment expenses for claims arising in the current year	4,763			4,435
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(3		)	(16		)
Total increases	4,760			4,419

Claims and claim adjustment expense payments for claims arising in:
Current year	947			970
Prior years	3,439			3,320
Total payments	4,386			4,290
Unrealized foreign exchange (gain) loss	(210		)	41
Net reserves at end of period	44,018			42,641
Plus reinsurance recoverables on unpaid losses	7,926			8,063
Claims and claim adjustment expense reserves at end of period	$	51,944		$	50,704

Gross claims and claim adjustment expense reserves at March 31, 2020 increased by $108 million from December 31, 2019, primarily reflecting the impact of higher volumes of insured exposures and loss cost trends for the current accident year.

Reinsurance recoverables on unpaid losses at March 31, 2020 decreased by $109 million from December 31, 2019, primarily reflecting the $53 million cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020 and cash collections in the first three months of 2020.

Beginning in late March, in response to COVID-19, a number of states have enacted changes designed to effectively expand workers’ compensation coverage by creating a presumption of compensability for certain types of workers. In addition, other states are considering similar changes. Depending on the number of states that institute such changes and the terms of the changes, as well as the outcome of any related legal challenges, the Company could experience elevated claims frequency and severity for its workers’ compensation line, which could have a material adverse effect on its results of operations.

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) PG&E reached agreement with the Governor of California to secure his support for PG&E's plan of reorganization and (iii) the ballots for voting have been sent to parties entitled to vote on PG&E's plan of reorganization and are due to be cast by May 15. The plan confirmation hearing is scheduled to begin May 27. The California Public Utilities Commission must provide regulatory approval for PG&E's plan of reorganization and is expected to issue its decision in the second quarter of 2020. 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.

Prior Year Reserve Development

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

For the three months ended March 31, 2020 and 2019, estimated claims and claim adjustment expenses incurred included $3 million and $16 million, respectively, of net favorable development for claims arising in prior years, including $27 million and $51 million, respectively, of net favorable prior year reserve development, and $12 million of accretion of discount in each period that impacted the Company's results of operations.

Business Insurance. Net favorable prior year reserve development in the first quarter of 2020 totaled $5 million, primarily driven 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 multiple accident years.

Largely offset by:


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

Net unfavorable prior year reserve development in the first quarter of 2019 totaled $21 million, primarily driven by:


•	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, primarily for years prior to 2009, due to the enactment by New York State of the Child Victims Act on February 14, 2019; and


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

Partially offset by:


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

Bond & Specialty Insurance. There was no net prior year reserve development in the first quarter of 2020. Net favorable prior year reserve development in the first quarter of 2019 of $3 million was not significant.

Personal Insurance. Net favorable prior year reserve development in the first quarter of 2020 totaled $22 million, 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 multiple accident years. Net favorable prior year reserve development in the first quarter of 2019 totaled $69 million, primarily driven by better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years.