Insurance Claim Reserves

9 Months Ended

Sep. 30, 2020

Insurance Loss Reserves [Abstract]

Insurance Claim Reserves

INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:

(in millions)	September 30, 2020		December 31, 2019
Property-casualty	$	54,406	$	51,836
Accident and health	12		13
Total	$	54,418	$	51,849

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)	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	14,809		14,193
Estimated increase (decrease) in claims and claim adjustment expenses for claims arising in prior years	(108)		214
Total increases	14,701		14,407
Claims and claim adjustment expense payments for claims arising in:
Current year	4,960		5,174
Prior years	7,246		8,034
Total payments	12,206		13,208
Unrealized foreign exchange (gain) loss	(62)		12
Net reserves at end of period	46,287		43,682
Plus reinsurance recoverables on unpaid losses	8,119		7,916
Claims and claim adjustment expense reserves at end of period	$	54,406	$	51,598

Gross claims and claim adjustment expense reserves at September 30, 2020 increased by $2.57 billion from December 31, 2019, primarily reflecting the impacts of (i) catastrophe losses in the first nine 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 September 30, 2020 increased by $84 million from December 31, 2019, primarily reflecting the impacts of catastrophe losses in the first nine months of 2020 and the asbestos reserve increase in the third quarter of 2020, partially offset by cash collections in the first nine 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.

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 the terms of the Plan, PG&E funded a trust from which the Company and other subrogation claimants have received, and/or will receive, recoveries related to the 2017 and 2018 California wildfires. In the third quarter of 2020, the Company recognized a subrogation benefit related to these claims of $403 million (the Company's estimate of its total recoveries from the trust prior to its expiration in 2025, pre-tax and net of expenses and amounts that inure to the benefit of the Company's reinsurers) and received payments from the trust of $366 million.

Prior Year Reserve Development

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

For the nine months ended September 30, 2020 and 2019, estimated claims and claim adjustment expenses incurred included $108 million and $(214) million, respectively, of net favorable (unfavorable) development for claims arising in prior years, including $171 million and $(120) million, respectively, of net favorable (unfavorable) prior year reserve development, and $36 million and $37 million, respectively, 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 2020 totaled $220 million, primarily driven by:

•Asbestos reserves - an increase of $295 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 primary and excess coverages primarily due to an increase to the reserves in the Company's run-off operations related to a single insured arising out of policies issued more than 20 years ago; and

•Commercial multi-peril (excluding PG&E subrogation recoveries and asbestos and environmental) - higher than expected loss experience in the segment's domestic operations for recent accident years.

Partially offset by:

•PG&E subrogation recoveries - $81 million of recoveries described above; and

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

Net unfavorable prior year reserve development in the third quarter of 2019 totaled $316 million, primarily driven by:

•Asbestos reserves - an increase of $220 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 primary and excess coverages for multiple accident years; and

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

Partially offset by:

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

Net unfavorable prior year reserve development in the first nine months of 2020 totaled $215 million, primarily driven by:

•Asbestos reserves - the increase of $295 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 primary and excess coverages for recent accident years;

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

•Commercial multi-peril (excluding PG&E subrogation recoveries and asbestos and environmental) - higher than expected loss experience in the segment's domestic operations for recent accident years.

Partially offset by:

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

•Commercial property (excluding PG&E subrogation recoveries) - better than expected loss experience in the segment's domestic operations for multiple accident years; and

•PG&E subrogation recoveries - $81 million of recoveries described above.

Net unfavorable prior year reserve development in the first nine months of 2019 totaled $266 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, including the impact of the enactment of legislation by a number of states, which extended the statute of limitations for childhood sexual molestation claims;

•Asbestos reserves - the increase of $220 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;

•Environmental reserves - an increase of $68 million, primarily in the segment's domestic general liability product line; and

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

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.  There was no net prior year reserve development in the third quarter of 2020. Net unfavorable prior year reserve development in the first nine months of 2020 totaled $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 third quarter and first nine months of 2019 totaled $3 million and $45 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 third quarter and first nine months of 2020 totaled $362 million and $419 million, respectively, primarily driven by $322 million of PG&E subrogation recoveries described above and better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years. Net favorable prior year reserve development in the third quarter and first nine months of 2019 totaled $19 million and $101 million, respectively. Net favorable prior year reserve development in the first nine 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.