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Reserve for Unpaid Losses and Loss Adjustment Expenses | 9 Months Ended
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Sep. 30, 2022
Liability for Unpaid Claims and Claims Adjustment Expense, Activity in Liability [Abstract] |
Reserve for Unpaid Losses and Loss Adjustment Expenses | 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,
| 2022 | 2021 |
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 31,449 |  | $ | 29,622 |  |
Reinsurance and other recoverables | 6,081 |  | 5,725 |  |
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 25,368 |  | 23,897 |  |
Provision for unpaid losses and loss adjustment expenses |  |  |
Current accident year | 6,361 |  | 5,968 |  |
Prior accident year development [1] | (147) |  | 170 |  |
Total provision for unpaid losses and loss adjustment expenses | 6,214 |  | 6,138 |  |
Change in deferred gain on retroactive reinsurance included in other liabilities [1] | — |  | (73) |  |
Payments |  |  |
Current accident year | (1,571) |  | (1,549) |  |
Prior accident years | (3,671) |  | (3,155) |  |
Total payments | (5,242) |  | (4,704) |  |
Foreign currency adjustment | (55) |  | 1 |  |
Ending liabilities for unpaid losses and loss adjustment expenses, net | 26,285 |  | 25,259 |  |
Reinsurance and other recoverables | 6,205 |  | 5,931 |  |
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 32,490 |  | $ | 31,190 |  |
[1]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and Asbestos and Environmental ("A&E") Adverse Development Cover ("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"), a subsidiary of Berkshire Hathaway Inc. For additional information regarding the two adverse development cover reinsurance agreements, refer to Adverse Development Covers discussion below. Unfavorable (Favorable) Prior Accident Year Development
|  | For the nine months ended September 30,
|  |  | 2022 | 2021
Workers’ compensation |  |  | $ | (143) |  | $ | (113) |
Workers’ compensation discount accretion |  |  | 27 |  | 26 |
General liability |  |  | 33 |  | 451 |
Marine |  |  | 2 |  | — |
Package business |  |  | (35) |  | (66) |
Commercial property |  |  | (17) |  | (24) |
Professional liability |  |  | (9) |  | (7) |
Bond |  |  | (4) |  | (26) |
Assumed reinsurance |  |  | 12 |  | — |
Automobile liability - Commercial Lines |  |  | 23 |  | 9 |
Automobile liability - Personal Lines |  |  | (14) |  | (73) |
Homeowners |  |  | (2) |  | 2 |
Catastrophes |  |  | (32) |  | (98) |
Uncollectible reinsurance |  |  | 3 |  | (10) |
Other reserve re-estimates, net |  |  | 9 |  | 26 |
Prior accident year development before change in deferred gain |  |  | (147) |  | 97 |
Change in deferred gain on retroactive reinsurance included in other liabilities [1] |  |  | — |  | 73 |
Total prior accident year development |  |  | $ | (147) |  | $ | 170 |
[1]The change in deferred gain for the nine months ended September 30, 2021 included $73 of adverse development on Navigators 2018 and prior accident year reserves, primarily driven by professional liability. 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 and 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. Re-estimates of prior accident year reserves for the nine months ended September 30, 2021 Workers’ compensation reserves were decreased within small commercial and middle & large commercial for the 2013 through 2018 accident years driven by lower than previously estimated claim severity. General liability reserves were increased including an increase for sexual molestation and sexual abuse claims above the amount of reserves previously recorded for this exposure, primarily to reflect an increase in reserves for claims made against the Boy Scouts of America ("BSA") as discussed further below, partially offset by reserve decreases for other mass torts and extra contractual liability claims. In addition, the Company recognized reserve increases on Navigators’ wholesale construction business for 2018 and prior accident years included in the change in deferred gain on retroactive reinsurance in the above table. Package business reserves decreased largely due to lower estimated loss adjustment expenses for accident years 2014 to 2018 and a reduction in estimated reserves for extra contractual liability claims. Commercial property reserves were decreased primarily due to favorable development for the 2020 accident year in both middle & large commercial and global specialty. Professional liability reserves were decreased due to lower estimated severity in both large and middle market directors’ and officers’ (“D&O”) insurance for older accident years. More than offsetting this favorable reserve development were reserve increases on legacy Navigators public company directors’ and officers’ insurance for 2018 and prior accident years which is reflected within the change in deferred gain on retroactive reinsurance in the above table. Bond reserves were reduced mostly due to favorable emergence on contract surety claims driven by higher than previously anticipated recoveries, largely for the 2016 to 2017 accident years. Automobile liability reserves were decreased in Personal Lines principally due to lower estimated severity on AARP Direct and Agency claims, primarily within accident years 2017 to 2020, and a reduction in estimated reserves for extra contractual liability claims. Catastrophes reserves were decreased in both Commercial and Personal Lines primarily driven by a reduction in reserves for 2019 and 2020 wind and hail events, lower estimated losses from 2017 and 2018 hurricanes and a reduction in estimated losses from the 2017 and 2018 California wildfires, including an expected recovery of subrogation from a utility related to the 2018 Woolsey wildfire in California. Uncollectible reinsurance reserves were decreased due to a higher than expected recovery from one reinsurer on which the Company had recognized an allowance for credit losses. Other reserve re-estimates, net, were increased primarily due to an increase in reserves for sexual molestation and sexual abuse claims within P&C Other Operations, principally on assumed reinsurance. Settlement Agreement with Boy Scouts of America On September 14, 2021, the Company announced that it entered into a new agreement-in-principle with the BSA, related to sexual molestation and sexual abuse claims associated with liability policies issued by various Hartford writing companies in the 1970s and early 1980s, with the agreement in-principle including the BSA, its local councils and the representatives of a majority of the sexual abuse claimants. As part of the agreement-in-principle, The Hartford will pay $787, before tax, for claims associated with policies mostly issued in the 1970s. In exchange for The Hartford’s payment, the BSA and its local councils will fully release The Hartford from any obligation under policies The Hartford issued to the BSA and its local councils. In addition, the representatives for the claimants joining this agreement-in-principle will support a plan of reorganization which incorporates the settlement. The agreement-in-principle was reached in connection with the BSA’s Chapter 11 bankruptcy and a written settlement agreement (the "Settlement") was executed on February 14, 2022. The Settlement will become final upon the occurrence of certain conditions, including, but not limited to, confirmation of the BSA’s plan of reorganization by both the bankruptcy and district courts, receipt of executed releases from the local councils, and approval of the Settlement as part of the confirmation of the BSA's plan of reorganization by the bankruptcy and district courts. On September 8, 2022, the bankruptcy court approved the BSA's plan of reorganization, including the Settlement. The BSA's plan of reorganization is now before the civil district court for approval. Upon civil district court approval, the Company will pay the settlement amount of $787. However, no assurance can be given that all the conditions precedent to the Settlement will be satisfied or that final court approval, if obtained, will not be delayed for various procedural reasons. If the conditions precedent to the Settlement are not satisfied or the requisite court approvals for the BSA’s plan of reorganization are not obtained, it is possible that adverse outcomes, if any, could have a material adverse effect on the Company’s consolidated operating results. 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 results in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid have been recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid result in a deferred gain. As of September 30, 2022, the Company has incurred $1,015 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $485 of available limit remaining under the A&E ADC. As a result, the Company has recorded a $365 deferred gain within other liabilities, representing the difference between the reinsurance recoverable of $1,015 and ceded premium paid of $650. The deferred gain is 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 will result in charges against earnings which may be significant. 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 September 30, 2022, the Company has recorded a reinsurance recoverable under the Navigators ADC of $300, as estimated cumulative loss development on the 2018 and prior accident year reserves has exhausted the treaty limit. While the reinsurance recoverable is $300, the Company has recorded a $209 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. The deferred gain is 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. Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
| For the nine months ended September 30,
| 2022 | 2021
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 8,210 |  | $ | 8,233 |
Reinsurance recoverables | 245 |  | 237 |
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 7,965 |  | 7,996 |
Provision for unpaid losses and loss adjustment expenses |  |
Current incurral year | 3,665 |  | 3,753 |
Prior year's discount accretion | 156 |  | 155 |
Prior incurral year development [1] | (323) |  | (382) |
Total provision for unpaid losses and loss adjustment expenses [2] | 3,498 |  | 3,526 |
Payments |  |
Current incurral year | (1,703) |  | (1,776) |
Prior incurral years | (1,900) |  | (1,804) |
Total payments | (3,603) |  | (3,580) |
Ending liabilities for unpaid losses and loss adjustment expenses, net | 7,860 |  | 7,942 |
Reinsurance recoverables | 251 |  | 246 |
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 8,111 |  | $ | 8,188 |
[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 $138 and $131 for the nine months ended September 30, 2022 and 2021, 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, 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 excess mortality losses incurred in fourth quarter 2021. Supplement Accident & Health- Prior period reserve estimates decreased by approximately $10 driven by lower than previously expected claim incidence. Re-estimates of prior incurral years reserves for the nine months ended September 30, 2021 Group disability- Prior period reserve estimates decreased by approximately $320 largely driven by group long-term disability claim incidence lower than prior assumptions together with strong recoveries on prior incurral year claims, and a New York Paid Family Leave risk adjustment benefit. Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $50 largely driven by lower-than-previously expected claim incidence in both group life premium waiver and group accidental death & dismemberment. Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $10 driven by lower-than-previously expected claim incidence during the pandemic. 10. RESERVE FOR FUTURE POLICY BENEFITS
Changes in Reserves for Future Policy Benefits[1]
| For the nine months ended September 30,
| 2022 | 2021
Beginning liability balance | $ | 596 |  | $ | 638 |
Incurred | 80 |  | 45 |
Paid | (91) |  | (74) |
Change in unrealized investment gains and losses | (18) |  | (7) |
Ending liability balance | $ | 567 |  | $ | 602 |
Ending reinsurance recoverable asset | $ | 31 |  | $ | 22 |
[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.

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- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -URI https://asc.fasb.org/subtopic&trid=2560295 + Details
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