Insurance Claim Reserves

6 Months Ended

Jun. 30, 2020

Insurance Loss Reserves [Abstract]

Insurance Claim Reserves

INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:

(in millions)	June 30, 2020		December 31, 2019
Property-casualty	$	53,097	$	51,836
Accident and health	12		13
Total	$	53,109	$	51,849

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

	Six Months Ended June 30,
(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	9,826		9,329
Estimated increase (decrease) in claims and claim adjustment expenses for claims arising in prior years	16		(118)
Total increases	9,842		9,211
Claims and claim adjustment expense payments for claims arising in:
Current year	2,664		2,810
Prior years	5,674		5,897
Total payments	8,338		8,707
Unrealized foreign exchange (gain) loss	(137)		62
Net reserves at end of period	45,221		43,037
Plus reinsurance recoverables on unpaid losses	7,876		8,022
Claims and claim adjustment expense reserves at end of period	$	53,097	$	51,059

Gross claims and claim adjustment expense reserves at June 30, 2020 increased by $1.26 billion from December 31, 2019, primarily reflecting the impacts of (i) catastrophe losses in the first six months of 2020, (ii) loss cost trends for the current accident year and (iii) reduced claim settlement activity largely due to the disruptions in the judicial system related to COVID-19.

Reinsurance recoverables on unpaid losses at June 30, 2020 decreased by $159 million from December 31, 2019, primarily reflecting cash collections in the first six months of 2020 and the $53 million increase in the allowance for estimated uncollectible reinsurance from the cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 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, 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.

Subsequent Event

PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) emerged from bankruptcy on July 1, 2020, the date the Debtors' and Shareholder Proponents' Joint Chapter 11 Plan of Reorganization Dated June 19, 2020 (the Plan) became effective. In accordance with terms of the Plan, PG&E funded a trust from which the Company and other subrogation claimants will receive payments related to the 2017 and 2018 California wildfires beginning in the third quarter of 2020. The Company expects to recognize in the third quarter of 2020 a subrogation benefit related to these claims of approximately $400 million pre-tax, net of expenses and amounts that would inure to the benefit of the Company's reinsurers.

Prior Year Reserve Development

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

For the six months ended June 30, 2020 and 2019, estimated claims and claim adjustment expenses incurred included $(16) million and $118 million, respectively, of net favorable (unfavorable) development for claims arising in prior years, including $29 million and $174 million, respectively, of net favorable prior year reserve development, and $24 million and $25 million, respectively, of accretion of discount in each period that impacted the Company's results of operations.

Business Insurance. There was no net prior year reserve development in the second quarter of 2020, which reflected 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 multiple accident years.

Offset 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; and

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

Net favorable prior year reserve development in the second quarter of 2019 totaled $71 million, primarily driven by:

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

Partially offset 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;

•Environmental reserves - an increase of $60 million, primarily in the segment's domestic general liability product line;

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

•International - higher than expected loss experience.

Net favorable prior year reserve development in the first six months 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;

•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; and

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

Net favorable prior year reserve development in the first six months of 2019 totaled $50 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 recent accident years.

Partially offset 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, including the impact of the enactment of legislation by a number of states, which extended the statute of limitations for childhood sexual molestation claims;

•Environmental reserves - an increase of $60 million, primarily in the segment's domestic general liability product line;

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

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

Bond & Specialty Insurance.  Net unfavorable prior year reserve development in each of the second quarter and first six months of 2020 was $33 million, primarily driven by higher than expected loss experience in the segment's domestic operations in the general liability product line for recent accident years. Net favorable prior year reserve development in the second quarter and first six months of 2019 totaled $39 million and $42 million, respectively, 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 second quarter and first six months of 2020 totaled $35 million and $57 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 multiple accident years. Net favorable prior year reserve development in the second quarter and first six months of 2019 totaled $13 million and $82 million, respectively. Net favorable prior year reserve development in the first six months of 2019 was 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.