Reserve for Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2018

Liability for Unpaid Claims and Claims Adjustment Expense, Activity in Liability [Abstract]

Reserve for Unpaid Losses and Loss Adjustment Expenses

Property and Casualty Insurance Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses



	For the nine months ended September 30,
	2018			2017
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	23,775		$	22,545
Reinsurance and other recoverables	3,957			3,488
Beginning liabilities for unpaid losses and loss adjustment expenses, net	19,818			19,057
Provision for unpaid losses and loss adjustment expenses
Current accident year	5,151			5,587
Prior accident year development	(139		)	1
Total provision for unpaid losses and loss adjustment expenses	5,012			5,588
Less payments
Current accident year	1,647			1,770
Prior accident years	3,166			3,143
Total payments	4,813			4,913
Ending liabilities for unpaid losses and loss adjustment expenses, net	20,017			19,732
Reinsurance and other recoverables	3,780			3,508
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	23,797		$	23,240

Unfavorable (Favorable) Prior Accident Year Development



	For the nine months ended September 30,
	2018			2017
Workers’ compensation	$	(97	)	$	(29	)
Workers’ compensation discount accretion	30			21
General liability	32			10
Package business	(16		)	(22		)
Commercial property	(10		)	(5		)
Professional liability	(12		)	—
Bond	—			10
Automobile liability - Commercial Lines	(15		)	20
Automobile liability - Personal Lines	(10		)	—
Homeowners	(20		)	—
Net asbestos reserves	—			—
Net environmental reserves	—			—
Catastrophes	(47		)	(12		)
Uncollectible reinsurance	22			—
Other reserve re-estimates, net	4			8
Total prior accident year development	$	(139	)	$	1

Re-estimates of prior accident year reserves for the nine months ended September 30, 2018

Workers’ compensation reserves were reduced in small commercial and middle market, primarily for accident years 2012 to 2015, as both claim frequency and medical claim severity have emerged favorably compared to previous reserve estimates.

General liability reserves were increased, primarily due to an increase in reserves for higher hazard general liability exposures in middle market for accident years 2009 to 2017, partially offset by a decrease in reserves for other lines within middle market, including premises and operations, umbrella and products liability, principally for accident years 2015 and prior. Contributing to the increase in reserves for higher hazard general liability exposures was an increase in large losses and, in more recent accident years, an increase in claim frequency. Contributing to the reduction in reserves for other middle market lines were more favorable outcomes due to initiatives to reduce legal expenses. In addition, reserve increases for claims with lead paint exposure were offset by reserve decreases for other mass torts and extra-contractual liability claims.

Package business reserves were reduced, primarily due to lower reserve estimates for both liability and property for accident years 2010 and prior, including a recovery of loss adjustment expenses for the 2005 accident year.

Commercial property reserves were reduced, driven by an increase in estimated reinsurance recoverables on middle market property losses from the 2017 accident year.

Professional liability reserves were reduced, principally for accident years 2014 and prior, for directors and officers liability claims principally due to a number of older claims closing with limited or no payment.

Automobile liability reserves were reduced, primarily driven by reduced estimates of loss adjustment expenses in small commercial for recent accident years and favorable development in personal automobile liability for accident years 2014 to 2017, principally due to lower severity, including with uninsured and underinsured motorist claims.

Homeowners reserves were reduced, primarily in accident years 2013 to 2017, driven by lower than expected severity across multiple perils.

Catastrophes reserves were reduced, primarily as a result of lower estimated net losses from 2017 catastrophes, principally related to hurricanes Harvey and Irma. Before reinsurance, estimated losses for 2017 catastrophe events decreased by $133 in the nine months ended September 30, 2018, resulting in a decrease in reinsurance recoverables of $90 as the Company no longer expects to recover under the 2017 Property Aggregate reinsurance treaty as aggregate ultimate losses for 2017 catastrophe events are now projected to be less than $850.

Uncollectible reinsurance reserves were increased due to lower anticipated recoveries related to older accident years.

Re-estimates of prior accident year reserves for the nine months ended September 30, 2017

Workers’ compensation reserves were reduced, primarily in small commercial, given the continued emergence of favorable frequency for accident years 2013 to 2015. Management has placed additional weight on this favorable experience as it becomes more credible.

General liability reserves were increased for the 2013 to 2016 accident years on a class of business that insures service and maintenance contractors. This increase was partially offset by a decrease in recent accident year reserves for other middle market general liability reserves.

Package reserves were reduced for accident years 2013 and prior largely due to reducing the Company's estimate of allocated loss adjustment expenses incurred to settle the claims.

Bond business reserves increased for customs bonds written between 2000 and 2010 which was partly offset by a reduction in reserves for recent accident years as reported losses for commercial and contract surety have emerged favorably.

Automobile liability reserves within Commercial Lines were increased in small commercial and large national accounts for the 2013 to 2016 accident years, driven by higher frequency of more severe accidents, including litigated claims.

Catastrophes reserves were reduced primarily due to lower estimates of 2016 wind and hail event losses and a decrease in losses on a 2015 wildfire.

Group Life, Disability and Accident Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses



	For the nine months ended September 30,
	2018			2017
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	8,512		$	5,772
Reinsurance recoverables	209			208
Beginning liabilities for unpaid losses and loss adjustment expenses, net	8,303			5,564
Add: Aetna U.S. group life and disability business acquisition [1]	42			—
Provision for unpaid losses and loss adjustment expenses
Current incurral year	3,423			1,960
Prior year's discount accretion	175			148
Prior incurral year development [2]	(284		)	(162		)
Total provision for unpaid losses and loss adjustment expenses [3]	3,314			1,946
Less: payments
Current incurral year	1,659			917
Prior incurral years	1,741			1,118
Total payments	3,400			2,035
Ending liabilities for unpaid losses and loss adjustment expenses, net	8,259			5,475
Reinsurance recoverables	241			208
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	8,500		$	5,683


[1]	Represents an adjustment to Aetna U.S. group life and disability business reserves, net of reinsurance as of the acquisition date, upon finalization of the opening balance sheet.


[2]	Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.


[3]	Includes unallocated loss adjustment expenses of $131, and $74 for the nine months ended September 30, 2018 and 2017, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2018

Group disability- Prior period reserve estimates decreased by approximately $195 largely driven by group long-term disability claim recoveries higher than prior reserve assumptions and claim incidence lower than prior assumptions. Short-term disability has also experienced favorable claim recoveries.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $85 largely driven by lower-than-previously expected claim incidence inclusive of group life, group life premium waiver, and group accidental death & dismemberment.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2017

Group disability- Prior period reserve estimates decreased by approximately $105 largely driven by group long-term disability claim recoveries higher than prior reserve assumptions. This favorability was partially reduced by lower expectation of future benefit offsets, particularly lower Social Security disability income approval rates and longer decision turnaround times in the Social Security Administration.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $55 largely driven by lower than previously expected claim incidence in group life and group life premium waiver and lower than expected severity on group accidental death & dismemberment.



Changes in Reserves for Future Policy Benefits^[1]
Liability balance as of January 1, 2018	$	713
Incurred	10
Paid	(25		)
Change in unrealized investment gains and losses	(42		)
Liability balance as of September 30, 2018	$	656
Reinsurance recoverable asset, as of January 1, 2018	$	26
Incurred	10
Paid	(1		)
Reinsurance recoverable asset, as of September 30, 2018	$	35



Liability balance as of January 1, 2017	$	322
Incurred	27
Paid	(24		)
Change in unrealized investment gains and losses	(9		)
Liability balance as of September 30, 2017	$	316
Reinsurance recoverable asset, as of January 1, 2017	$	28
Incurred	(6		)
Paid	—
Reinsurance recoverable asset, as of September 30, 2017	$	22

[1]Reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits segment and reserves for run-off structured settlement and terminal funding agreement liabilities which are in the Corporate category.