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 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 September 30, 2021								As of December 31, 2020
	Property and Casualty		Group Benefits		Corporate		Total		Property and Casualty		Group Benefits		Corporate		Total
A.M. Best Financial Strength Rating
A++	$	1,728	$	—	$	—	$	1,728	$	1,598	$	—	$	—	$	1,598
A+	1,876		236		279		2,391		1,788		230		305		2,323
A	696		—		—		696		638		—		—		638
A-	29		9		—		38		37		9		—		46
B++	644		—		3		647		666		—		3		669
Below B++	21		1		—		22		21		1		—		22
Total Rated by A.M. Best	4,994		246		282		5,522		4,748		240		308		5,296
Mandatory (Assigned) and Voluntary Risk Pools	251		—		—		251		259		—		—		259
Captives	311		—		—		311		305		—		—		305
Other not rated companies	255		7		—		262		254		5		—		259
Gross Reinsurance Recoverables	5,811		253		282		6,346		5,566		245		308		6,119
Allowance for uncollectible reinsurance	(96)		(1)		(2)		(99)		(105)		(1)		(2)		(108)
Net Reinsurance Recoverables	$	5,715	$	252	$	280	$	6,247	$	5,461	$	244	$	306	$	6,011

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. The decrease in the ACL for the nine months ended September 30, 2021 was primarily due to higher than expected recovery from one reinsurer on which the Company had recognized an ACL. In the three and nine months ended September 30, 2021, there were no write-offs of reinsurance recoverables that would impact ACL.


Allowance for Uncollectible Reinsurance for the Three Months Ended
	September 30, 2021								September 30, 2020
	Property and Casualty		Group Benefits		Corporate		Total		Property and Casualty		Group Benefits		Corporate		Total
Beginning allowance for uncollectible reinsurance	$	96	$	1	$	2	$	99	$	108	$	1	$	2	$	111
Beginning allowance for disputed amounts	56		—		—		56		57		—		—		$	57
Beginning ACL	40		1		2		43		51		1		2		54


Current period provision (release)	1		—		—		1		1		—		—		1



Ending ACL	41		1		2		44		52		1		2		55
Ending allowance for disputed amounts	55		—		—		55		54		—		—		54
Ending allowance for uncollectible reinsurance	$	96	$	1	$	2	$	99	$	106	$	1	$	2	$	109


Allowance for Uncollectible Reinsurance for the Nine Months Ended
	September 30, 2021								September 30, 2020
	Property and Casualty		Group Benefits		Corporate		Total		Property and Casualty		Group Benefits		Corporate		Total
Beginning allowance for uncollectible reinsurance	$	105	$	1	$	2	$	108	$	114	$	—	$	—	$	114
Beginning allowance for disputed amounts	53		—		—		53		66		—		—		$	66
Beginning ACL	52		1		2		55		48		—		—		48
Cumulative effect of accounting change [1]									—		1		1		2
Adjusted beginning ACL	52		1		2		55		48		1		1		50
Current period provision (release)	(11)		—		—		(11)		3		—		1		4


Current period gross recoveries	—		—		—		—		1		—		—		1
Ending ACL	41		1		2		44		52		1		2		55
Ending allowance for disputed amounts	55		—		—		55		54		—		—		54
Ending allowance for uncollectible reinsurance	$	96	$	1	$	2	$	99	$	106	$	1	$	2	$	109

[1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report.