Insurance Claim Reserves

9 Months Ended

Sep. 30, 2021

Claims and claim adjustment expense reserves were as follows:


(in millions)	September 30, 2021		December 31, 2020
Property-casualty	$	56,795	$	54,510
Accident and health	10		11
Total	$	56,805	$	54,521

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)	2021		2020
Claims and claim adjustment expense reserves at beginning of year	$	54,510	$	51,836
Less reinsurance recoverables on unpaid losses	8,153		8,035
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020	—		53
Net reserves at beginning of year	46,357		43,854

Estimated claims and claim adjustment expenses for claims arising in the current year	15,813		14,809
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(398)		(108)
Total increases	15,415		14,701

Claims and claim adjustment expense payments for claims arising in:
Current year	5,653		4,960
Prior years	7,339		7,246
Total payments	12,992		12,206
Unrealized foreign exchange gain	(18)		(62)
Net reserves at end of period	48,762		46,287
Plus reinsurance recoverables on unpaid losses	8,033		8,119
Claims and claim adjustment expense reserves at end of period	$	56,795	$	54,406

Gross claims and claim adjustment expense reserves at September 30, 2021 increased by $2.29 billion from December 31, 2020, primarily reflecting the impacts of (i) catastrophe losses in the first nine months of 2021, (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, 2021 decreased by $120 million from December 31, 2020, primarily reflecting the impacts of cash collections in the first nine months of 2021, partially offset by catastrophe losses in the same period.

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).

Prior Year Reserve Development

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

For the nine months ended September 30, 2021 and 2020, estimated claims and claim adjustment expenses incurred included $398 million and $108 million, respectively, of net favorable development for claims arising in prior years, including $443 million and $171 million, respectively, of net favorable prior year reserve development, and $36 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 2021 totaled $108 million, primarily driven by an increase in asbestos reserves of $225 million, partially offset by better than expected loss experience in domestic operations in the workers' compensation product line for multiple accident years. Net unfavorable prior year reserve development in the third quarter of 2020 totaled $220 million, primarily driven by an increase in asbestos reserves of $295 million, primarily in the segment's domestic operations, higher than expected loss experience in the segment's domestic operations in the general liability product line (excluding asbestos and environmental) 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 in the commercial multi-peril product line (excluding PG&E subrogation recoveries and asbestos and environmental) for recent accident years, partially offset by PG&E subrogation recoveries of $81 million described above and better than expected loss experience in the segment's domestic operations in the workers' compensation product line for multiple accident years.

Net favorable prior year reserve development in the first nine months of 2021 totaled $99 million, primarily driven by better than expected loss experience in domestic operations in the workers' compensation product line for multiple accident years and in the commercial automobile and commercial property product lines for recent accident years and better than expected loss experience in the segment's international operations, partially offset by an increase in asbestos reserves of $225 million, an increase in other reserves related to run-off operations and an increase to environmental reserves. Net unfavorable prior year reserve development in the first nine months of 2020 totaled $215 million, primarily driven by an increase in asbestos reserves of $295 million, primarily in the segment's domestic operations, higher than expected loss experience in the segment's domestic operations in the general liability product line (excluding asbestos and environmental) for primary and excess coverages and the commercial automobile product line and the commercial multi-peril product line (excluding PG&E subrogation recoveries and asbestos and environmental) for recent accident years, partially offset by better than expected loss experience in the segment's domestic operations in the workers' compensation product line and the commercial property product line (excluding PG&E subrogation recoveries) for multiple accident years, as well as PG&E subrogation recoveries of $81 million described above.

Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter of 2021 totaled $22 million, primarily driven by better than expected loss experience in the segment's domestic operations in the fidelity and surety product lines for recent accident years. There was no net prior year reserve development in the third quarter of 2020.

Net favorable prior year reserve development in the first nine months of 2021 totaled $81 million, primarily driven by better than expected loss experience in the segment's domestic operations in the fidelity and surety product lines for recent accident years, partially offset by higher than expected loss experience in the general liability product line for management liability coverages for multiple accident years. 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 management liability coverages for recent accident years.

Personal Insurance. Net favorable prior year reserve development in the third quarter of 2021 totaled $30 million, primarily driven by better than expected loss experience in the segment's domestic operations in the homeowners and other product line for recent accident years. Net favorable prior year reserve development in the third quarter of 2020 totaled $362 million, 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 first nine months of 2021 totaled $263 million, primarily driven by better than expected loss experience in the segment's domestic operations in both the homeowners and other and automobile product lines for recent accident years. Net favorable prior year reserve development in the first nine months of 2020 totaled $419 million, 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.