Reinsurance

3 Months Ended

Mar. 31, 2024

8. REINSURANCE

The Company cedes insurance risk to reinsurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.

Reinsurance Recoverables

Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment

expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported ("IBNR") unpaid losses. The Company’s estimate of losses and loss adjustment expense ("LAE") reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.


Reinsurance Recoverables by Credit Quality Indicator
	As of March 31, 2024								As of December 31, 2023
	P&C		Group Benefits		Corporate		Total		P&C		Group Benefits		Corporate		Total
A.M. Best Financial Strength Rating
A++	$	2,394	$	—	$	—	$	2,394	$	2,398	$	—	$	—	$	2,398
A+	2,034		250		243		2,527		2,030		251		241		2,522
A	787		1		—		788		810		1		—		811
A-	647		5		—		652		653		5		—		658
B++	4		—		3		7		2		—		3		5
Below B++	22		—		—		22		22		—		—		22
Total Rated by A.M. Best	5,888		256		246		6,390		5,915		257		244		6,416
Mandatory (Assigned) and Voluntary Risk Pools	203		—		—		203		208		—		—		208
Captives	353		—		—		353		353		—		—		353
Other not rated companies	243		6		—		249		226		4		—		230
Gross Reinsurance Recoverables	6,687		262		246		7,195		6,702		261		244		7,207
Allowance for uncollectible reinsurance	(98)		(1)		(2)		(101)		(100)		(1)		(2)		(103)
Net Reinsurance Recoverables	$	6,589	$	261	$	244	$	7,094	$	6,602	$	260	$	242	$	7,104

Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days. To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating.

Where its contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers.

Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.

The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. The ACL is estimated as the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability of default and the amount of loss given a default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed on a quarterly basis and any significant changes are reflected in an updated estimate. The probability of default factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated

through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors of corporations through multiple economic cycles or, in the case of purchased annuities funding structured settlements accounted for as reinsurance, historical recovery rates for annuity contract holders.

As shown in the table above, a portion of the total gross reinsurance recoverable balance relates to the Company’s participation in various mandatory (assigned) and voluntary risk pools. Reinsurance recoverables due from pools are backed by the financial position of all insurance companies participating in the pools and the credit backing the reinsurance recoverable is not limited to the financial strength of each pool. The mandatory pools generally are funded through policy assessments or

surcharges and if any participant in the pool defaults, remaining liabilities are apportioned among the other members.

The Company's evaluation of the required ACL for reinsurance recoverables considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 5 - Investments. Insurance companies, including reinsurers, are regulated and hold risk-based capital ("RBC") to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance recoverables. As a result, there is limited history of losses from insurer defaults.


Allowance for Uncollectible Reinsurance for the Three Months Ended
	Three Months Ended March 31,
		2024		2023
P&C beginning allowance for uncollectible reinsurance		$	100	$	102
Beginning allowance for disputed amounts		57		60
P&C beginning ACL		43		42
Current period provision		1		2

P&C ending ACL		44		44
Ending allowance for disputed amounts		54		58
P&C ending allowance for uncollectible reinsurance		98		102
Group Benefits allowance for uncollectible reinsurance		1		1
Corporate allowance for uncollectible reinsurance		2		2
Total allowance for uncollectible reinsurance		$	101	$	105