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Reserve for Property and Casualty Insurance Claims and Claims Expense | 9 Months Ended
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Sep. 30, 2022
Reserve for Property-Liability Insurance Claims and Claims Expense [Abstract] |
Reserve for Property and Liability Insurance Claims and Claims Expense |
Note 9 | Reserve for Property and Casualty Insurance Claims and Claims Expense
The Company establishes reserves for claims and claims expense on reported and unreported claims of insured losses. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When the Company experiences changes in the mix or type of claims or changing claim settlement patterns, it applies actuarial judgment in the determination and selection of development factors to be more reflective of the new trends. For example, the Coronavirus has had a significant impact on driving patterns and auto frequency. Supply chain disruptions have resulted in higher parts costs, used car values and longer time to claim resolution, which have combined with labor shortages to increase physical damage loss costs. Medical inflation, treatment trends, attorney representation, litigation costs and more severe accidents have contributed to higher third-party bodily injury loss costs. These factors may lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability. Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using several different actuarial estimation methods. Changes in auto claim frequency may result from changes in mix of business, driving behaviors, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors, the effectiveness and efficiency of claim practices and changes in mix of claim types. The Company mitigates these effects through various loss management programs. When such changes in claim data occur, actuarial judgment is used to determine appropriate development factors to establish reserves. As part of the reserving process, the Company may also supplement its claims processes by utilizing third-party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process. Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not reported (“IBNR”) losses, the establishment of appropriate reserves, including reserves for catastrophes, Run-off Property-Liability and reinsurance and indemnification recoverables, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the initial reporting period as it contains the greatest proportion of losses that have not been reported or settled as well as heightened uncertainty for claims that involve litigation or take longer to settle during periods of rapidly increasing loss costs. The Company also has uncertainty in the Run-off Property-Liability reserves that are based on events long since passed and are complicated by lack of historical data, legal interpretations, unresolved legal issues and legislative intent based on establishment of facts. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in reserve estimates, which may be material, are reported in property and casualty insurance claims and claims expense in the Condensed Consolidated Statements of Operations in the period such changes are determined. Management believes that the reserve for property and casualty insurance claims and claims expense, net of recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Condensed Consolidated Statements of Financial Position based on available facts, laws and regulations.
Rollforward of the reserve for property and casualty insurance claims and claims expense
|  | Nine months ended September 30,
($ in millions) |  | 2022 |  | 2021
Balance as of January 1 |  | $ | 33,060 |  |  | $ | 27,610 |
Less recoverables (1) |  | (9,479) |  |  | (7,033) |
Net balance as of January 1 |  | 23,581 |  |  | 20,577 |
National General acquisition as of January 4, 2021 |  | — |  |  | 1,797 |
Incurred claims and claims expense related to: |  |  |  |
Current year |  | 25,792 |  |  | 21,579 |
Prior years |  | 1,470 |  |  | (65) |
Total incurred |  | 27,262 |  |  | 21,514 |
Claims and claims expense paid related to: |  |  |  |
Current year |  | (14,020) |  |  | (12,539) |
Prior years |  | (9,850) |  |  | (8,098) |
Total paid |  | (23,870) |  |  | (20,637) |
Net balance as of September 30 |  | 26,973 |  |  | 23,251 |
Plus recoverables |  | 9,556 |  |  | 10,035 |
Balance as of September 30 |  | $ | 36,529 |  |  | $ | 33,286 |
(1)Recoverables comprises reinsurance and indemnification recoverables. Incurred claims and claims expense represents the sum of paid losses, claim adjustment expenses and reserve changes in the period. This expense included losses from catastrophes of $2.33 billion and $2.81 billion in the nine months ended September 30, 2022 and 2021, respectively, net of recoverables. Catastrophes are an inherent risk of the property and casualty insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position.
Prior year reserve reestimates included in claims and claims expense (1)
|  | Non-catastrophe losses |  | Catastrophe losses |  | Total
($ in millions) |  | 2022 |  | 2021 |  | 2022 |  | 2021 (2) (3) |  | 2022 |  | 2021
Three months ended September 30, |  |  |  |  |  |  |  |  |  |  |  |
Auto |  | $ | 643 |  |  | $ | 77 |  |  | $ | (11) |  |  | $ | (5) |  |  | $ | 632 |  |  | $ | 72 |
Homeowners |  | 51 |  |  | 14 |  |  | 4 |  |  | 3 |  |  | 55 |  |  | 17 |
Other personal lines |  | (2) |  |  | (66) |  |  | (3) |  |  | — |  |  | (5) |  |  | (66) |
Commercial lines |  | 63 |  |  | 24 |  |  | 1 |  |  | 1 |  |  | 64 |  |  | 25 |
Run-off Property-Liability (4) |  | 120 |  |  | 113 |  |  | — |  |  | — |  |  | 120 |  |  | 113 |
Protection Services |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total prior year reserve reestimates |  | $ | 875 |  |  | $ | 162 |  |  | $ | (9) |  |  | $ | (1) |  |  | $ | 866 |  |  | $ | 161 |
Nine months ended September 30, |  |  |  |  |  |  |  |  |  |  |  |
Auto |  | $ | 1,069 |  |  | $ | 31 |  |  | $ | (58) |  |  | $ | (28) |  |  | $ | 1,011 |  |  | $ | 3 |
Homeowners |  | 95 |  |  | 12 |  |  | 82 |  |  | (168) |  |  | 177 |  |  | (156) |
Other personal lines |  | (18) |  |  | (69) |  |  | 4 |  |  | (14) |  |  | (14) |  |  | (83) |
Commercial lines |  | 174 |  |  | 55 |  |  | 1 |  |  | 3 |  |  | 175 |  |  | 58 |
Run-off Property-Liability (4) |  | 124 |  |  | 115 |  |  | — |  |  | — |  |  | 124 |  |  | 115 |
Protection Services |  | (3) |  |  | (2) |  |  | — |  |  | — |  |  | (3) |  |  | (2) |
Total prior year reserve reestimates |  | $ | 1,441 |  |  | $ | 142 |  |  | $ | 29 |  |  | $ | (207) |  |  | $ | 1,470 |  |  | $ | (65) |
(1)Favorable reserve reestimates are shown in parentheses. (2)Included approximately $40 million and $240 million of estimated recoveries related to Nationwide Aggregate Reinsurance Program cover for aggregate catastrophe losses occurring between April 1, 2020 and December 31, 2020, for the three and nine months ended 2021, respectively, which primarily impacted homeowners reestimates. (3)Included approximately $110 million favorable subrogation settlements arising from the Woolsey wildfire, which primarily impacted homeowners reestimates, for the nine months ended 2021. (4)The Company’s 2022 and 2021 annual reserve reviews, using established industry and actuarial practices, resulted in unfavorable reestimates of $118 million and $111 million, respectively. Unfavorable reserve reestimates for personal auto are primarily from bodily injury and physical damage coverages. Increases in injury coverages reflect recent data and updated assumptions related to severity of third-party bodily injury claims, increased claims with attorney representation, litigation costs and higher medical inflation. Increases in physical damage reflect the ongoing inflationary factors and supply chain shortages impacting used vehicle and parts prices, labor rates and length of claim resolution. Delays in the receipt of third-party carrier claims also contributed to the adverse development of claims reported in prior years.

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- Definition Describes the various components of the reserve for property-liability future policy benefits and guaranteed minimum benefits, and for claims and claims adjustment expenses; the significant assumptions for estimating claims losses; causes of significant variances from prior periods (such as catastrophes, asbestos and environmental claims reserve losses); and reconciliations of beginning to ending reserve balances. + References No definition available. + Details
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- Definition Reserve for Property-Liability Insurance Claims and Claims Expense [Abstract] + References No definition available. + Details
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