XML 84 R16.htm IDEA: XBRL DOCUMENT v3.24.0.1
Reinsurance
 12 Months Ended
Dec. 31, 2023
Insurance [Abstract]  
Reinsurance
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.
The Company has two ADC reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years ("A&E ADC") up to an aggregate limit of $1.5 billion and the other covered substantially all reserve development of Navigators Insurance Company ("NIC") and certain of its affiliates for 2018 and prior accident years (the "Navigators ADC") up to an aggregate limit of $300. As the Company has ceded all of the $300 available limit, there is no remaining limit available under the Navigators ADC. For more information on ADC agreements, see Note 1 - Basis of Presentation and Significant Accounting Policies, and Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses.
Property and Casualty ceded losses, which reduce losses and loss adjustment expenses incurred, were $1,043, $1,338 and $1,243 for the years ended December 31, 2023, 2022 and 2021, respectively.
Group Benefits ceded losses, which reduce losses and loss adjustment expenses incurred, were $93, $81 and $85 for the years ended December 31, 2023, 2022 and 2021, respectively.
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 December 31, 2023As of December 31, 2022
P&C
Group Benefits
CorporateTotal
P&C
Group Benefits
CorporateTotal
AM Best Financial Strength Rating
A++$2,398 $— $— $2,398 $2,094 $— $— $2,094 
A+2,030 251 241 2,522 2,169 239 259 2,667 
A810 1 — 811 763 1 — 764 
A-653 5 — 658 79 6 — 85 
B++2 — 3 5 616 — 2 618 
Below B++22 — — 22 20 — — 20 
Total Rated by AM Best5,915 257 244 6,416 5,741 246 261 6,248 
Mandatory (Assigned) and Voluntary Risk Pools208 — — 208 218 — — 218 
Captives353 — — 353 319 — — 319 
Other not rated companies226 4 — 230 279 5 — 284 
Gross Reinsurance Recoverables6,702 261 244 7,207 6,557 251 261 7,069 
Allowance for uncollectible reinsurance
(100)(1)(2)(103)(102)(1)(2)(105)
Net Reinsurance Recoverables$6,602 $260 $242 $7,104 $6,455 $250 $259 $6,964 
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 in 2021 was primarily due to a higher than expected recovery from one reinsurer on which the Company had recognized an ACL.
Allowance for Uncollectible Reinsurance
As of December 31, 2023As of December 31, 2022As of December 31, 2021
P&C beginning allowance for uncollectible reinsurance$102 $96 $105 
Beginning allowance for disputed amounts60 54 53 
P&C beginning ACL42 42 52 
Current period provision (release)3 — (9)
Current period gross write-offs(2)— (1)
P&C ending ACL43 42 42 
Ending allowance for disputed amounts57 60 54 
P&C ending allowance for uncollectible reinsurance100 102 96 
Group Benefits allowance for uncollectible reinsurance1 1 1 
Corporate allowance for uncollectible reinsurance2 2 2 
Total allowance for uncollectible reinsurance$103 $105 $99 
Insurance Revenues
Property and Casualty Insurance Revenue
 For the years ended December 31,
Premiums Written202320222021
Direct$16,144 $14,891 $13,696 
Assumed975 718 631 
Ceded(1,642)(1,490)(1,378)
Net$15,477 $14,119 $12,949 
Premiums Earned   
Direct$15,514 $14,328 $13,204 
Assumed826 654 568 
Ceded(1,612)(1,462)(1,277)
Net$14,728 $13,520 $12,495 
Group Benefits Revenue
 For the years ended December 31,
 202320222021
Gross earned premiums, fees and other considerations$6,445 $5,988 $5,663 
Reinsurance assumed174 175 128 
Reinsurance ceded(104)(106)(104)
Net earned premiums, fees and other considerations$6,515 $6,057 $5,687 
For its group benefits products, the Company reinsures certain of its risks to other reinsurers under yearly renewable term and coinsurance arrangements and variations thereto. Yearly renewable term and coinsurance arrangements result in passing
a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments.