Reserve for Future Policy Benefits

9 Months Ended

Sep. 30, 2023

9. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

|PROPERTY & CASUALTY INSURANCE PRODUCT RESERVES, NET OF REINSURANCE

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses


	For the nine months ended September 30,
	2023		2022
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	33,083	$	31,449
Reinsurance and other recoverables	6,465		6,081
Beginning liabilities for unpaid losses and loss adjustment expenses, net	26,618		25,368
Provision for unpaid losses and loss adjustment expenses
Current accident year	7,151		6,361
Prior accident year development	(82)		(147)
Total provision for unpaid losses and loss adjustment expenses	7,069		6,214

Payments
Current accident year	(1,829)		(1,571)
Prior accident years	(4,873)		(3,671)
Total payments	(6,702)		(5,242)
Foreign currency adjustment	3		(55)
Ending liabilities for unpaid losses and loss adjustment expenses, net	26,988		26,285
Reinsurance and other recoverables	6,465		6,205
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	33,453	$	32,490

Unfavorable (Favorable) Prior Accident Year Development


	For the nine months ended September 30,
		2023		2022
Workers’ compensation		$	(174)	$	(143)
Workers’ compensation discount accretion		32		27
General liability		39		33
Marine		(1)		2
Package business		(18)		(35)
Commercial property		2		(17)
Professional liability		(3)		(9)
Bond		12		(4)
Assumed reinsurance		19		12
Automobile liability - Commercial Lines		6		23
Automobile liability - Personal Lines		—		(14)
Homeowners		1		(2)
Net asbestos and environmental ("A&E") reserves		—		—



Catastrophes		(44)		(32)
Uncollectible reinsurance		13		3
Other reserve re-estimates, net		34		9


Total prior accident year development		$	(82)	$	(147)

Re-estimates of prior accident year reserves for the nine months ended September 30, 2023

Workers’ compensation reserves were decreased within the 2014 to 2019 accident years primarily in small commercial, driven by lower than previously estimated claim severity. In addition, the 2020 accident year reflects a $38 reduction of COVID-19 related reserves.

General liability reserves were increased driven by higher frequency and estimated cost to settle large individual claims for the 2016 to 2019 accident years, partially offset by a decrease in reserves for the 2020 accident year due to favorable experience. In addition, reserves for sexual molestation and sexual abuse claims were increased for older accident years. Also included was a decrease in reserves for extra contractual liability claims and other miscellaneous run-off lines.

Package business reserves decreased primarily due to lower than previously estimated property severity for accident year 2019 and 2021. Package liability is flat overall with reserve increases related to higher severity across multiple accident years offset by improvement in accident year 2020 due to favorable claim count emergence.

Commercial property reserves were flat primarily due to unfavorable development for accident year 2022 in middle & large commercial, offset by favorable development in global specialty.

Professional liability reserves decreased modestly due to favorable development on directors' and officers' claims for the 2019 to 2021 accident years partially offset by deterioration

on errors and omissions claims primarily for the 2018 accident year.

Bond reserves were increased primarily due to unfavorable development for 2013 and prior accident years related to customs bonds.

Assumed reinsurance reserves were increased due to higher reserve estimates in the specialty casualty, Latin America casualty and surety business.

Automobile liability reserves - Commercial Lines increased primarily due to adverse loss development within accident years 2017 to 2019.

Automobile liability reserves - Personal Lines were flat as increases for accident year 2022 from higher estimated severity and increasing attorney representation rates were fully offset by decreases, primarily within accident years 2019 to 2021, due to lower estimated severity.

Catastrophes reserves were decreased primarily within Commercial Lines driven by a reduction in reserves in accident year 2022 for Hurricane Ian and accident year 2021 for Hurricane Ida.

Uncollectible reinsurance was increased primarily in Commercial Lines related to a captive reinsurer and, to a lesser extent, an increase in reserves for potential collection disputes and credit concerns.

Other reserve re-estimates, net, were increased primarily due to an increase in accident year 2022 Personal Lines automobile physical damage severity.

Re-estimates of prior accident year reserves for the nine months ended September 30, 2022

Workers’ compensation reserves were decreased for the 2014 through 2018 accident years, predominately within small commercial, driven by lower than previously estimated claim severity, and, to a lesser extent, a $14 reduction of COVID-19 related claims from 2020.

General liability reserves were increased, driven by an increase in the estimated cost to settle large individual claims in middle & large commercial for the 2016 to 2019 accident years, an increase in excess casualty for the 2019 accident year, and increases in primary construction on older accident years, partially offset by a decrease in reserves for other mass torts.

Package business reserves decreased due to lower estimated severity and lower estimated loss adjustment expenses for accident years 2013 to 2018 and a reduction in property reserves for the 2020 and 2021 accident years.

Commercial property reserves were decreased primarily due to favorable development for the 2020 accident year in middle & large commercial related to COVID-19 claims and a reduction in property reserves for the 2021 accident year.

Professional liability reserves were decreased primarily due to favorable development on directors’ and officers’ claims for the 2018 to 2020 accident years and on errors and omissions claims for the 2013 to 2017 accident years, partially offset by large losses related to 2018 and prior accident years for primary and excess directors’ and officers’ claims.

Assumed reinsurance reserves were increased primarily due to higher reserve estimates for syndicate property claims, including higher expected COVID-19 property losses in the 2020 accident year and increased reserves for international agriculture related to drought claims.

Automobile liability reserves were decreased in Personal Lines principally due to lower estimated severity on AARP Direct claims, primarily within accident years 2015 to 2020 and were increased in Commercial Lines principally due to a higher number of large claims in accident years 2017 to 2019.

Catastrophe reserves were decreased in both Commercial and Personal Lines with the largest reduction related to 2019 and 2020 wind and hail events.

Other reserve re-estimates, net, were increased primarily due to an increase in automobile physical damage severity and unfavorable development from participation in involuntary market pools.

Settlement Agreement with Boy Scouts of America

On February 14, 2022, the Company executed a final settlement agreement (the “Settlement”) with the Boy Scouts of America (“BSA”), the Local Councils, and the attorneys representing a majority of the alleged victims, pursuant to which The Hartford agreed to pay $787 for sexual molestation and sexual abuse claims associated with liability policies issued by various Hartford Writing Companies in the 1970s and early 1980s. In exchange for its payment, the Company receives a complete release of its policies issued to BSA and the Local Councils, as well as an injunction against further abuse claims involving BSA. All conditions precedent to the Settlement have been satisfied, including approval by the bankruptcy court and the district court, and on April 20, 2023, The Hartford paid the Settlement amount of $787. Certain objecting parties have appealed the district court’s ruling and that appeal is pending before the Third Circuit. If the court approvals for the BSA’s plan of reorganization are not affirmed on appeal, it is possible that adverse outcomes, if any, could have a material adverse effect on the Company’s operating results.

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses


	For the nine months ended September 30,
	2023		2022
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	8,160	$	8,210
Reinsurance recoverables	245		245
Beginning liabilities for unpaid losses and loss adjustment expenses, net	7,915		7,965

Provision for unpaid losses and loss adjustment expenses
Current incurral year	3,899		3,665
Prior year's discount accretion	149		156
Prior incurral year development [1]	(403)		(323)
Total provision for unpaid losses and loss adjustment expenses [2]	3,645		3,498
Payments
Current incurral year	(1,772)		(1,703)
Prior incurral years	(1,798)		(1,900)
Total payments	(3,570)		(3,603)
Ending liabilities for unpaid losses and loss adjustment expenses, net	7,990		7,860
Reinsurance recoverables	243		251
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	8,233	$	8,111

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

[2]Includes unallocated loss adjustment expenses ("ULAE") of $136 and $138 for the nine months ended September 30, 2023 and 2022, 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, 2023

Group disability- Prior period reserve estimates decreased by approximately $369 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 $25 largely driven by continued low incidence in group life premium waiver.

Supplemental accident and health- Prior period reserve estimates decreased by approximately $9 driven by lower than previously expected claim incidence.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2022

Group disability- Prior period reserve estimates decreased by approximately $275 largely driven by group long-term disability claim incidence lower than prior assumptions, strong recoveries on prior incurral year claims and higher estimated claim termination rates.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $40 largely driven by continued low incidence in group life premium waiver as well as a reduction in estimated mortality group term life losses incurred in fourth quarter 2021.

Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $10 driven by lower than previously expected claim incidence.

. RESERVE FOR FUTURE POLICY BENEFITS


Rollforward of Reserve for Future Policy Benefits
	For the nine months ended September 30,
	2023						2022
	Payout Annuities		Life Conversions		Paid-up Life		Payout Annuities		Life Conversions		Paid-up Life
Present Value of Expected Net Premiums
Balance, beginning of the period			$	47					$	58
Balance, ending of the period			$	46					$	47

Present Value of Expected Future Policy Benefits
Beginning balance at single-A rate	$	140	$	112	$	192	$	188	$	152	$	262
Beginning adjustment for changes in single-A rate	4		(14)		(39)		47		19		14
Beginning balance at original discount rate	136		126		231		141		133		248
Effect of changes in cash flow assumptions	(2)		1		—		—		—		—
Effect of actual variances from expected experience	1		4		(1)		—		5		—
Adjusted beginning balance	135		131		230		141		138		248

Interest accrual and other	5		14		7		6		13		5
Benefit Payments	(9)		(20)		(17)		(9)		(21)		(19)
Ending balance at original discount rate	131		125		220		138		130		234
Ending adjustment for changes in single-A rate	(3)		(20)		(44)		1		(16)		(41)
Ending balance at single-A rate	$	128	$	105	$	176	$	139	$	114	$	193

Net reserve for future policy benefits	$	128	$	59	$	176	$	139	$	67	$	193
Weighted-average duration of the reserve for future policy benefits (years)	9.0		11.4		6.1		9.2		12.0		6.4


Net Reserve for Future Policy Benefits
	As of September 30,
	2023		2022
Payout Annuities	$	128	$	139
Life Conversions	59		67
Paid-up Life	176		193
Deferred Profit Liability	20		19
Other	80		90
Total	$	463	$	508


Undiscounted Expected Future Gross Premiums and Benefit Payments
	As of September 30,
	2023		2022
Payout Annuities [1]
Expected future benefit payments	$	259	$	275
Life Conversions
Expected future gross premiums	$	116	$	125
Expected future benefit payments	$	206	$	217
Paid-up Life [1]
Expected future benefit payments	$	285	$	305

[1]Payout Annuities and Paid-up Life have no expected future gross premiums.


Weighted-Average Interest Rates
	As of September 30,
	2023		2022
Payout Annuities
Interest accretion rate	5.6	%	5.6	%
Current discount rate	5.9	%	5.5	%
Life Conversions
Interest accretion rate	4.2	%	4.1	%
Current discount rate	5.9	%	5.4	%
Paid-up Life
Interest accretion rate	2.9	%	2.9	%
Current discount rate	5.9	%	5.3	%

The Company completed a review of cash flow assumptions in the third quarter 2023, resulting in immaterial changes to the reserve for future policy benefits. For payout annuities, the net effect of updating cash flow assumptions was partially offset by a corresponding impact to the deferred profit liability. Gross premiums and interest accretion recognized on long-duration insurance policies for the nine months ended September 30, 2023 and 2022 were immaterial.