Reserve for Future Policy Benefits

3 Months Ended

Mar. 31, 2020

Insurance Loss Reserves [Abstract]

Reserve for Future Policy Benefits

Property and Casualty Insurance Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses

	For the three months ended March 31,
	2020			2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	28,261		$	24,584
Reinsurance and other recoverables	5,275			4,232
Beginning liabilities for unpaid losses and loss adjustment expenses, net	22,986			20,352
Provision for unpaid losses and loss adjustment expenses
Current accident year	1,883			1,641
Prior accident year development [1]	23			(11		)
Total provision for unpaid losses and loss adjustment expenses	1,906			1,630
Change in deferred gain on retroactive reinsurance included in other liabilities [1]	(29		)	—
Payments
Current accident year	(304		)	(271		)
Prior accident years	(1,491		)	(1,309		)
Total payments	(1,795		)	(1,580		)
Foreign currency adjustment	(20		)	—
Ending liabilities for unpaid losses and loss adjustment expenses, net	23,048			20,402
Reinsurance and other recoverables	5,332			4,209
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	28,380		$	24,611

[1] Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators adverse development cover ('Navigators ADC') which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from National Indemnity Company ("NICO"). For additional information regarding the Navigators ADC agreement, please refer to Adverse Development Covers discussion below.

Unfavorable (Favorable) Prior Accident Year Development

	For the three months ended March 31,
	2020			2019
Workers’ compensation	$	(17	)	$	(20	)
Workers’ compensation discount accretion	9			8
General liability	12			6
Marine	—			—
Package business	1			5
Commercial property	(7		)	(2		)
Professional liability	1			—
Bond	—			—
Assumed reinsurance	—			—
Automobile liability - Commercial Lines	5			—
Automobile liability - Personal Lines	(6		)	(5		)
Homeowners	(2		)	1
Net asbestos reserves	—			—
Net environmental reserves	—			—
Catastrophes	(13		)	(8		)
Uncollectible reinsurance	—			—
Other reserve re-estimates, net	11			4
Prior accident year development before change in deferred gain	(6		)	(11		)
Change in deferred gain on retroactive reinsurance included in other liabilities [1]	29			—
Total prior accident year development	$	23		$	(11	)

[1] The change in deferred gain for the three months ended March 31, 2020 primarily included increased reserves for marine and, to a lesser extent, prior accident year catastrophes.

Re-estimates of prior accident year reserves for the three months ended March 31, 2020

Workers’ compensation reserves were reduced on national account business within middle & large commercial, driven by lower than previously estimated claim severity for the 2014 and prior accident years.

General liability reserves were increased, primarily related to guaranteed cost construction business for accident years 2016 to 2019 as incurred losses are developing higher than previously expected for premises and operations claims and product liability claims, partly due to a change in industry mix and a heavier concentration of losses in California than initially assumed.

Marine reserves were increased principally due to an increase in domestic marine liability, mostly in accident years 2017 and 2018 due to a higher number of large losses. The increase in marine reserves is included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Commercial property reserves were decreased for accident year 2019 due to favorable developments on marine and middle market property claims.

Automobile liability reserves were decreased in Personal Lines principally due to lower than previously expected AARP Direct auto liability claim severity for the 2018 accident year. Auto liability reserves were increased in Commercial Lines primarily due to higher than expected large losses on national accounts in the first quarter of 2020 related to accident years 2015 to 2017.

Catastrophes reserves were reduced, primarily due to a reduction in estimated catastrophes for the 2019 accident year and a reduction in estimated reserves for 2017 California wildfires, partially offset by an increase in reserves for 2019 typhoons Hagibis and Faxai in Asia.

In December, 2019, the judge overseeing the bankruptcy of PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) approved an $11 billion settlement with insurers representing approximately 85 percent of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. The bankruptcy court has also approved PG&E’s settlement with individual wildfire claimants with a portion of the settlement amount to be paid to individual plaintiffs in the form of PG&E stock. Those settlements are subject to confirmation by the bankruptcy court of a chapter 11 plan of reorganization ("PG&E Plan") which implements the terms of the settlements. If the PG&E Plan is approved, certain of the Company’s insurance subsidiaries would be entitled to settlement payments of subrogation claims. Based on reserve estimates submitted with the subrogation request, the amount our subsidiaries could collect from PG&E, if any, would be approximately $300 to $325 but could be more or less than that amount depending on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. Confirmation of the PG&E Plan and amount of the Company’s ultimate subrogation recoveries from PG&E are subject to uncertainty, particularly given objections raised by legal counsel for some of the individual plaintiffs now advising rejection of the PG&E Plan given concerns over the potential value of the PG&E shares to be received under the settlement. If the PG&E Plan is not approved, PG&E may not have sufficient capital to meet individual claims and subrogation payments and the amount the Company collects as subrogation recoveries could be reduced.

Given the uncertainty about whether the PG&E Plan will be confirmed, the Company has not recognized a benefit from potential subrogation from PG&E and will evaluate in future periods when more information becomes known. In connection with the 2018 Camp wildfire, the Company has recognized a $12 reinsurance recoverable for losses incurred in excess of a $350 per occurrence retention. Under its 2018 property aggregate catastrophe treaty, the Company has recognized a reinsurance recoverable for aggregate catastrophe losses in excess of an $825 retention, with the recoverable currently estimated at $45. As such, the first $57 of subrogation recoveries would be offset by a $57 reduction in these reinsurance recoverables resulting in no net benefit to income.

Other reserve re-estimates, net, primarily included an increase in reserves on pool participations.

Re-estimates of prior accident year reserves for the three months ended March 31, 2019

Workers’ compensation reserves were reduced, principally in small commercial driven by lower than previously estimated claim severity for the 2014 and 2015 accident years.

General liability reserves were increased, primarily due to reserve increases in small commercial for accident years 2017 and 2018 due to higher frequency of high-severity bodily injury claims.

Package business reserves were increased, primarily due to increased severity on 2018 accident year property claims.

Automobile liability reserves were reduced, primarily driven by the emergence of lower estimated severity in personal automobile liability for accident year 2017.

Catastrophes reserves were reduced, primarily as a result of lower estimated net losses from 2017 hurricanes Harvey and Irma.

Adverse Development Covers

The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.

Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit.  Cumulative ceded losses up to the $650 reinsurance premium paid are recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings. As of March 31, 2020, the Company has incurred $640 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $860 of available limit remaining under the A&E ADC.

Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO, on behalf of Navigators Insurers. Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018.

As of March 31, 2020, the Company has recorded a reinsurance recoverable under the Navigators ADC of $136 as estimated cumulative ceded loss development on the 2018 and prior accident year reserves of $236 exceed the $100 deductible. While the reinsurance recoverable is $136, the Company has also recorded a $45 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a deferred gain. As the Company has ceded $136 of the $300 available limit, there is $164 of remaining limit available as of March 31, 2020.

Group Life, Disability and Accident Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses

	For the three months ended March 31,
	2020			2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	8,256		$	8,445
Reinsurance recoverables [1]	246			239
Beginning liabilities for unpaid losses and loss adjustment expenses, net	8,010			8,206
Provision for unpaid losses and loss adjustment expenses
Current incurral year	1,148			1,150
Prior year's discount accretion	57			58
Prior incurral year development [2]	(163		)	(120		)
Total provision for unpaid losses and loss adjustment expenses [3]	1,042			1,088
Payments
Current incurral year	(278		)	(314		)
Prior incurral years	(821		)	(855		)
Total payments	(1,099		)	(1,169		)
Ending liabilities for unpaid losses and loss adjustment expenses, net	7,953			8,125
Reinsurance recoverables	249			237
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	8,202		$	8,362

[1] Reflects a cumulative effect adjustment of $(1) representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for further information.

[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 $44 and $46 for the three months ended March 31, 2020 and 2019, 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 three months ended March 31, 2020

Group disability- Prior period reserve estimates decreased by approximately $100 largely driven by group long-term disability claim incidence lower than prior assumptions and strong recoveries on prior incurral year claims. 

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $50 largely driven by lower prior year mortality than prior assumptions in group life and lower than previously expected claim incidence in group life premium waiver.

Re-estimates of prior incurral years reserves for the three months ended March 31, 2019

Group disability- Prior period reserve estimates decreased by approximately $105 largely driven by group long-term

disability claim recoveries higher than prior reserve assumptions and claim incidence lower than prior assumptions. New York Paid Family Leave also experienced favorable claim emergence compared to prior estimates.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $10 largely driven by lower than previously expected claim incidence in group life premium waiver.

11. RESERVE FOR FUTURE POLICY BENEFITS

Changes in Reserves for Future Policy Benefits[1]
Liability balance, as of January 1, 2020	$	635
Incurred	18
Paid	(22		)
Change in unrealized investment gains and losses	(2		)
Liability balance, as of March 31, 2020	$	629
Reinsurance recoverable asset, as of January 1, 2020	$	31
Incurred	(1		)
Paid	—
Reinsurance recoverable asset, as of March 31, 2020	$	30

Liability balance, as of January 1, 2019	$	642
Incurred	27
Paid	(28		)
Change in unrealized investment gains and losses	7
Liability balance, as of March 31, 2019	$	648
Reinsurance recoverable asset, as of January 1, 2019	$	27
Incurred	5
Paid	(2		)
Reinsurance recoverable asset, as of March 31, 2019	$	30

[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.