losses and loss adjustment expenses. In order to monitor adherence to the underwriting guidelines given to such parties, the Company periodically performs underwriting and claims due diligence reviews.

In determining ultimate losses and loss adjustment expenses, the cost to indemnify claimants, provide needed legal defense and other services for insureds and administer the investigation and adjustment of claims are considered. These claim costs are influenced by many factors that change over time, such as expanded coverage definitions as a result of new court decisions, inflation in costs to repair or replace damaged property, inflation in the cost of medical services and legislated changes in statutory benefits, as well as by the particular, unique facts that pertain to each claim. As a result, the rate at which claims arose in the past and the costs to settle them may not always be representative of what will occur in the future. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple and conflicting interpretations. Changes in coverage terms or claims handling practices may also cause future experience and/or development patterns to vary from the past. A key objective of actuaries in developing estimates of ultimate losses and loss adjustment expenses, and resulting IBNR reserves, is to identify aberrations and systemic changes occurring within historical experience and adjust for them so that the future can be projected more reliably. Because of the factors previously discussed, this process requires the substantial use of informed judgment and is inherently uncertain.

Although Loss Reserves are initially determined based on underwriting and pricing analyses, the Company’s insurance segment applies several generally accepted actuarial methods, as discussed below, on a quarterly basis to evaluate the Loss Reserves, in addition to the expected loss method, in particular for Loss Reserves from more mature accident years (the year in which a loss occurred). Each quarter, as part of the reserving process, the segments’ actuaries reaffirm that the assumptions used in the reserving process continue to form a sound basis for the projection of liabilities. If actual loss activity differs substantially from expectations based on historical information, an adjustment to Loss Reserves may be supported. The Company places more or less reliance on a particular actuarial method based on the facts and circumstances at the time the estimates of Loss Reserves are made.

These methods generally fall into one of the following categories or are hybrids of one or more of the following categories:

•Expected loss methods - these methods are based on the assumption that ultimate losses vary proportionately with premiums. Expected loss and loss adjustment expense

ratios are typically developed based upon the information derived by underwriters and actuaries during the initial pricing of the business, supplemented by industry data available from organizations, such as statistical bureaus and consulting firms, where appropriate. These ratios consider, among other things, rate increases and changes in terms and conditions that have been observed in the market. Expected loss methods are useful for estimating ultimate losses and loss adjustment expenses in the early years of long-tailed lines of business, when little or no paid or incurred loss information is available, and is commonly applied when limited loss experience exists for a company.

•Historical incurred loss development methods - these methods assume that the ratio of losses in one period to losses in an earlier period will remain constant in the future. These methods use incurred losses (i.e., the sum of cumulative historical loss payments plus outstanding case reserves) over discrete periods of time to estimate future losses. Historical incurred loss development methods may be preferable to historical paid loss development methods because they explicitly take into account open cases and the claims adjusters’ evaluations of the cost to settle all known claims. However, historical incurred loss development methods necessarily assume that case reserving practices are consistently applied over time. Therefore, when there have been significant changes in how case reserves are established, using incurred loss data to project ultimate losses may be less reliable than other methods.

•Historical paid loss development methods - these methods, like historical incurred loss development methods, assume that the ratio of losses in one period to losses in an earlier period will remain constant. These methods use historical loss payments over discrete periods of time to estimate future losses and necessarily assume that factors that have affected paid losses in the past, such as inflation or the effects of litigation, will remain constant in the future. Because historical paid loss development methods do not use incurred losses to estimate ultimate losses, they may be more reliable than the other methods that use incurred losses in situations where there are significant changes in how incurred losses are established by a company’s claims adjusters. However, historical paid loss development methods are more leveraged (meaning that small changes in payments have a larger impact on estimates of ultimate losses) than actuarial methods that use incurred losses because cumulative loss payments take much longer to equal the expected ultimate losses than cumulative incurred amounts. In addition, and for similar reasons, historical paid loss development methods are often slow to react to situations when new or different factors arise than those that have affected paid losses in the past.

•Adjusted historical paid and incurred loss development methods - these methods take traditional historical paid and incurred loss development methods and adjust them for the estimated impact of changes from the past in factors such as inflation, the speed of claim payments or the adequacy of case reserves. Adjusted historical paid and incurred loss development methods are often more reliable methods of predicting ultimate losses in periods of significant change, provided the actuaries can develop methods to reasonably quantify the impact of changes. As such, these methods utilize more judgment than historical paid and incurred loss development methods.

•Bornhuetter-Ferguson (“B-F”) paid and incurred loss methods - these methods utilize actual paid and incurred losses and expected patterns of paid and incurred losses, taking the initial expected ultimate losses into account to determine an estimate of expected ultimate losses. The B-F paid and incurred loss methods are useful when there are few reported claims and a relatively less stable pattern of reported losses.

•Frequency-Severity methods - These methods utilize actual paid and incurred claim experience, but break the data down into its component pieces: claim counts, often expressed as a ratio to exposure or premium (frequency), and average claim size (severity). The component pieces are projected to an ultimate level and multiplied together to result in an estimate of ultimate loss. These methods are especially useful when the severity of claims can be confined to a relatively stable range of estimated ultimate average claim value.

•Additional analyses - other methodologies are often used in the reserving process for specific types of claims or events, such as catastrophic or other specific major events. These include vendor catastrophe models, which are typically used in the estimation of Loss Reserves at the early stage of known catastrophic events before information has been reported to an insurer or reinsurer.

In the initial reserving process for short-tail insurance lines (consisting of property, energy, marine and aviation and other exposures including travel, accident and health and lenders products), the Company relies on a combination of the reserving methods discussed above. For catastrophe-exposed business, the reserving process also includes the usage of catastrophe models for known events and a heavy reliance on analysis of individual catastrophic events and management judgment. The development of losses on short-tail business can be unstable, especially for policies characterized by high severity, low frequency losses. As time passes, for a given accident year, additional weight is given to the paid and incurred B-F loss development methods and eventually to the historical paid and incurred loss development methods in the reserving process. The Company

makes a number of key assumptions in their reserving process, including that historical paid and reported development patterns are stable, catastrophe models provide useful information about our exposure to catastrophic events that have occurred and underwriters’ judgment as to potential loss exposures can be relied on. The expected loss ratios used in the initial reserving process for short-tail business have varied over time due to changes in pricing, reinsurance structure, estimates of catastrophe losses, policy changes (such as attachment points, class and limits) and geographical distribution. As losses in short-tail lines are reported relatively quickly, expected loss ratios are selected for the current accident year based upon actual attritional loss ratios for earlier accident years, adjusted for rate changes, inflation, changes in reinsurance programs and expected attritional losses based on modeling. Furthermore, ultimate losses for short-tail business are known in a reasonably short period of time.

In the initial reserving process for medium-tail and long-tail insurance lines (consisting of third party occurrence business, third party claims made business, and other exposures including surety, programs and contract binding exposures), the Company primarily relies on the expected loss method. The development of the Company’s medium-tail and long-tail business may be unstable, especially if there are high severity major events, as a portion of the Company’s casualty business is in high excess layers. As time passes, for a given accident year, additional weight is given to the paid and incurred B-F loss development methods and historical paid and incurred loss development methods in the reserving process. The Company makes a number of key assumptions in reserving for medium-tail and long-tail lines, including that the pricing loss ratio is the best estimate of the ultimate loss ratio at the time the policy is entered into, that the loss

development patterns, which are based on a combination of company and industry loss development patterns and adjusted to reflect differences in the insurance segment’s mix of business, are reasonable and that claims personnel and underwriters analyses of our exposure to major events are assumed to be the best estimate of exposure to the known claims on those events. The expected loss ratios used in the initial reserving process for medium-tail and long-tail business for recent accident years have varied over time, in some cases significantly, from earlier accident years. As the credibility of historical experience for earlier accident years increases, the experience from these accident years will be given a greater weighting in the actuarial analysis to determine future accident year expected loss ratios, adjusted for changes in pricing, loss trends, terms and conditions and reinsurance structure.

In 2018, the Company entered into a loss portfolio transfer and adverse development cover reinsurance agreement accounted for as retroactive reinsurance. The agreement transfers Loss Reserves and future favorable or adverse development on certain runoff programs, within multi-line and other specialty business, and certain third party occurrence business (the “Covered Lines”). As incurred losses and allocated loss adjustment expenses for the Covered Lines are ceded to the reinsurer, the Company is not exposed to changes in the amount, timing and uncertainty of cash flows arising from the Covered Lines. To avoid distortion, the incurred losses and allocated loss adjustment expenses and cumulative paid losses and loss adjustment expenses for the Covered Lines are excluded entirely from the tables below. Reinsurance recoverables at December 31, 2020 included $153.1 million related to this reinsurance agreement.

The following tables present information on the insurance segment’s short-duration insurance contracts:


Property, energy, marine and aviation ($000’s except claim count)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	269,739	$	272,897	$	231,841	$	220,231	$	210,926	$	207,814	$	200,918	$	201,198	$	197,833	$	196,436	$	689	4,219
2012			232,500		231,742		205,098		198,837		196,405		192,406		190,192		178,039		177,673		931		4,269
2013					158,718		156,344		148,800		143,046		134,620		133,544		128,301		126,968		809		4,278
2014							148,185		145,765		147,315		136,096		132,209		134,234		134,937		4,206		3,930
2015									112,333		109,799		103,944		102,469		97,809		91,788		5,249		4,618
2016											104,139		100,986		105,330		100,147		96,127		882		6,389
2017													280,695		246,272		235,932		230,421		9,327		6,752
2018															180,981		186,030		173,693		14,784		5,347
2019																	179,056		178,564		20,553		6,051
2020																			359,394		168,463		16,980
																	Total		$	1,766,001

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	34,478	$	99,724	$	142,231	$	167,867	$	200,473	$	202,347	$	197,720	$	198,626	$	195,245	$	195,347
2012			20,522		92,855		138,431		161,255		166,965		179,371		180,734		172,611		173,460
2013					32,239		84,759		110,548		119,791		121,922		125,156		123,036		124,369
2014							25,859		53,669		77,804		84,103		87,721		98,463		115,293
2015									23,567		64,916		76,299		86,214		87,887		86,207
2016											24,728		83,321		98,420		97,218		94,703
2017													30,219		139,854		195,518		211,694
2018															30,026		102,285		134,858
2019																	26,130		105,380
2020																			55,619
									Total										1,296,930
									All outstanding liabilities before 2011, net of reinsurance										23,517
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	492,588


Third party occurrence business ($000’s except claim count)
	Incurred losses and allocated loss adjustment expenses, net of reinsurance																				December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	234,068	$	240,669	$	254,181	$	258,784	$	252,615	$	253,976	$	247,052	$	239,676	$	234,782	$	235,073	$	35,138	70,924
2012			241,062		262,718		268,365		271,035		257,418		252,822		242,930		243,484		241,378		50,208		65,495
2013					282,968		296,839		306,751		301,789		281,786		274,391		272,528		269,437		60,720		66,685
2014							329,809		335,720		338,623		342,868		339,495		343,995		342,731		77,547		74,964
2015									358,858		391,666		398,670		391,904		391,231		382,518		107,083		77,257
2016											389,623		394,281		405,889		399,394		374,728		142,000		76,765
2017													417,183		417,748		422,441		412,318		195,684		82,267
2018															430,216		452,975		450,736		248,271		74,789
2019																	456,059		487,224		318,622		80,934
2020																			606,827		524,473		67,541
																	Total		$	3,802,970

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	7,020	$	25,276	$	43,479	$	73,448	$	113,502	$	134,622	$	152,756	$	160,609	$	172,940	$	181,505
2012			6,966		30,824		58,444		83,328		108,252		129,572		143,177		154,282		162,202
2013					6,845		29,230		71,370		101,196		122,120		149,098		164,187		174,700
2014							9,209		40,263		71,519		112,591		161,993		191,168		211,503
2015									11,119		44,542		88,443		139,403		181,566		211,573
2016											11,689		41,938		87,565		136,793		164,573
2017													13,396		52,323		99,827		135,025
2018															17,002		63,798		115,076
2019																	18,392		73,120
2020																			24,439
									Total										1,453,716
									All outstanding liabilities before 2011, net of reinsurance										209,031
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	2,558,285


Third party claims-made business ($000’s except claim count)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	287,607	$	330,898	$	322,274	$	317,074	$	322,934	$	301,240	$	288,038	$	289,974	$	291,477	$	290,124	$	4,594	11,762
2012			317,360		319,961		318,161		313,622		291,010		275,388		277,388		284,875		285,236		13,772		14,760
2013					301,715		320,387		324,167		320,284		294,465		290,961		281,751		271,262		15,306		14,543
2014							264,354		279,544		298,715		278,706		281,513		297,485		291,729		29,279		13,935
2015									258,817		277,437		276,328		259,902		255,276		252,329		29,255		13,817
2016											275,119		291,377		308,195		314,515		321,850		61,156		15,734
2017													270,523		285,993		311,980		308,401		82,537		15,923
2018															272,844		314,412		319,956		123,386		14,988
2019																	289,463		317,668		186,452		18,871
2020																			383,914		327,587		21,538
																	Total		$	3,042,469

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	13,740	$	72,365	$	130,424	$	175,139	$	208,665	$	228,450	$	240,267	$	254,300	$	269,579	$	276,887
2012			17,709		69,020		121,112		164,605		190,200		209,097		227,179		251,078		255,098
2013					19,015		87,408		137,890		179,302		197,907		217,030		238,798		245,504
2014							13,815		63,296		129,502		172,835		207,640		229,512		243,338
2015									9,061		52,019		100,048		126,452		174,108		193,130
2016											10,547		68,178		127,229		158,159		205,514
2017													9,289		67,572		113,047		143,149
2018															12,255		68,300		118,184
2019																	12,387		65,345
2020																			17,098
									Total										1,763,247
									All outstanding liabilities before 2011, net of reinsurance										97,957
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	1,377,179


Multi-line and other specialty ($000’s except claim count) (1)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	183,081	$	188,766	$	182,979	$	176,545	$	172,649	$	172,403	$	168,888	$	170,350	$	170,091	$	166,577	$	1,790	44,989
2012			253,525		264,217		258,467		256,106		255,277		247,050		247,279		244,191		244,246		2,551		55,512
2013					274,361		283,112		274,483		281,697		271,687		275,386		273,177		270,853		4,661		72,323
2014							349,754		373,978		370,442		387,082		398,240		410,366		418,512		12,232		111,727
2015									398,755		418,761		420,642		443,258		456,329		471,865		18,596		151,598
2016											482,653		504,586		514,650		516,239		537,591		28,282		177,931
2017													551,688		579,217		578,341		615,833		45,947		221,643
2018															570,069		621,534		629,299		74,894		247,622
2019																	613,638		667,415		134,996		234,383
2020																			654,302		403,044		117,814
																	Total		$	4,676,493

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	51,312	$	103,372	$	117,927	$	136,686	$	148,049	$	151,710	$	157,199	$	159,526	$	162,460	$	162,995
2012			78,337		165,836		190,064		209,124		222,929		231,776		232,987		236,282		239,244
2013					86,791		152,773		185,611		222,086		237,898		251,698		257,744		260,374
2014							109,236		206,444		255,332		306,411		341,580		367,026		380,041
2015									142,009		250,360		304,197		350,781		380,818		409,455
2016											181,415		323,681		382,805		425,642		464,774
2017													187,606		363,275		419,454		480,336
2018															214,475		399,852		464,970
2019																	213,950		397,104
2020																			174,862
									Total										3,434,155
									All outstanding liabilities before 2011, net of reinsurance										31,453
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	1,273,791

(1) In 2019, the Company entered into a loss portfolio transfer agreement, which transferred reserves associated with certain multi-line business for accident years 2017 and prior to a third party. This loss portfolio transfer agreement was commuted in 2020, therefore the complete history of the subject business is now included in the multi-line triangles above.

The following table presents the average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance, as of December 31, 2020:


	Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Property, energy, marine and aviation	18.6	%	41.7	%	19.6	%	7.8	%	3.9	%	3.3	%	2.3	%	(1.0)	%	(0.6)	%	0.1	%
Third party occurrence business	3.2	%	9.2	%	11.3	%	11.6	%	11.3	%	8.8	%	6.2	%	3.9	%	4.3	%	3.6	%
Third party claims-made business	4.5	%	18.7	%	18.4	%	12.9	%	12.2	%	7.1	%	5.8	%	5.2	%	3.3	%	2.5	%
Multi-line and other specialty	30.8	%	27.7	%	10.5	%	10.4	%	6.7	%	4.6	%	2.3	%	1.2	%	1.5	%	0.3	%

Reinsurance Segment

Loss Reserves for the Company’s reinsurance segment are comprised of (1) case reserves, (2) additional case reserves (“ACRs”) and (3) IBNR reserves. The Company receives reports of claims notices from ceding companies and records case reserves based upon the amount of reserves recommended by the ceding company. Case reserves may be supplemented by ACRs, which may be estimated by the Company’s claims personnel ahead of official notification from the ceding company, or when judgment regarding the size or severity of the known event differs from the ceding company. In certain instances, the Company establishes ACRs even when the ceding company does not report any liability on a known event. In addition, specific claim information reported by ceding companies or obtained through claim audits can alert the Company to emerging trends such as changing legal interpretations of coverage and liability, claims from unexpected sources or classes of business, and significant changes in the frequency or severity of individual claims. Such information is often used in the process of estimating IBNR reserves. IBNR reserves are established to provide for incurred claims which have not yet been reported at the balance sheet date as well as to adjust for any projected variance in case reserving. Actuaries estimate ultimate losses and loss adjustment expenses using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made. The process of estimating Loss Reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain.

The estimation of Loss Reserves for the reinsurance segment is subject to the same risk factors as the estimation of Loss Reserves for the insurance segment. In addition, the inherent uncertainties of estimating such reserves are even greater for reinsurers, due primarily to the following factors: (1) the claim-tail for reinsurers is generally longer because claims are first reported to the ceding company and then to the reinsurer through one or more intermediaries, (2) the reliance on premium estimates, where reports have not been received from the ceding company, in the reserving process, (3) the potential for writing a number of reinsurance contracts with different ceding companies with the same exposure to a single loss event, (4) the diversity of loss development

patterns among different types of reinsurance contracts, (5) the necessary reliance on the ceding companies for information regarding reported claims and (6) the differing reserving practices among ceding companies.

Ultimate losses and loss adjustment expenses are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to persist into the future.As with the insurance segment, the process of estimating Loss Reserves for the reinsurance segment involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. As discussed above, such uncertainty is greater for reinsurers compared to insurers. As a result, our reinsurance operations obtain information from numerous sources to assist in the process. Pricing actuaries from the reinsurance segment devote considerable effort to understanding and analyzing a ceding company’s operations and loss history during the underwriting of the business, using a combination of ceding company and industry statistics. Such statistics normally include historical premium and loss data by class of business, individual claim information for larger claims, distributions of insurance limits provided, loss reporting and payment patterns, and rate change history. This analysis is used to project expected loss ratios for each treaty during the upcoming contract period.

As mentioned above, there can be a considerable time lag from the time a claim is reported to a ceding company to the time it is reported to the reinsurer. The lag can be several years in some cases and may be attributed to a number of reasons, including the time it takes to investigate a claim, delays associated with the litigation process, the deterioration in a claimant’s physical condition many years after an accident occurs, the case reserving approach of the ceding company, etc. In the reserving process, the Company assumes that such lags are predictable, on average, over time and therefore the lags are contemplated in the loss reporting patterns used in their actuarial methods. This means that the reinsurance segment must rely on estimates for a longer period of time than does an insurance company. Backlogs in the recording of assumed reinsurance can also complicate the accuracy of loss reserve estimation. As of December 31, 2020 there were no significant backlogs related to the processing of assumed reinsurance information at our reinsurance operations.

The reinsurance segment relies heavily on information reported by ceding companies, as discussed above. In order to determine the accuracy and completeness of such information, underwriters, actuaries, and claims personnel often perform audits of ceding companies and regularly review information received from ceding companies for unusual or unexpected results. Material findings are usually discussed with the ceding companies. The Company sometimes encounters situations where they determine that a claim presentation from a ceding company is not in accordance with contract terms. In these situations, the Company attempts to resolve the dispute with the ceding company. Most situations are resolved amicably and without the need for litigation or arbitration. However, in the infrequent situations where a resolution is not possible, the Company will vigorously defend its position in such disputes.

Although Loss Reserves are initially determined based on underwriting and pricing analysis, the Company applies several generally accepted actuarial methods, as discussed above, on a quarterly basis to evaluate its Loss Reserves in addition to the expected loss method, in particular for reserves from more mature underwriting years (the year in which business is underwritten). Each quarter, as part of the reserving process, the Company’s actuaries reaffirm that the assumptions used in the reserving process continue to form a sound basis for projection of liabilities. If actual loss activity differs substantially from expectations based on historical information, an adjustment to Loss Reserves may be supported. Estimated Loss Reserves for more mature underwriting years are now based more on actual loss activity and historical patterns than on the initial assumptions based on pricing indications. More recent underwriting years rely more heavily on internal pricing assumptions. The Company places more or less reliance on a particular actuarial method based on the facts and circumstances at the time the estimates of Loss Reserves are made.

In the initial reserving process for short-tail reinsurance lines (consisting of property excluding property catastrophe and property catastrophe exposures), the Company relies on a combination of the reserving methods discussed above. For known catastrophic events, the reserving process also includes the usage of catastrophe models and a heavy reliance on analysis which includes ceding company inquiries and management judgment. The development of property losses may be unstable, especially where there is high catastrophic exposure, may be characterized by high severity, low frequency losses for excess and catastrophe-exposed business and may be highly correlated across contracts. As time passes, for a given underwriting year, additional weight is given to the paid and incurred B-F loss development methods and historical paid and incurred loss development

methods in the reserving process. The Company makes a number of key assumptions in reserving for short-tail lines, including that historical paid and reported development patterns are stable, catastrophe models provide useful information about our exposure to catastrophic events that have occurred and our underwriters’ judgment and guidance received from ceding companies as to potential loss exposures may be relied on. The expected loss ratios used in the initial reserving process for property exposures have varied over time due to changes in pricing, reinsurance structure, estimates of catastrophe losses, terms and conditions and geographical distribution. As losses in property lines are reported relatively quickly, expected loss ratios are selected for the current underwriting year incorporating the experience for earlier underwriting years, adjusted for rate changes, inflation, changes in reinsurance programs, expectations about present and future market conditions and expected attritional losses based on modeling. Due to the short-tail nature of property business, reported loss experience emerges quickly and ultimate losses are known in a reasonably short period of time.

In the initial reserving process for medium-tail and long-tail reinsurance lines (consisting of casualty, other specialty, marine and aviation and other exposures), the Company primarily relies on the expected loss method. The development of medium-tail and long-tail business may be unstable, especially if there are high severity major events, with business written on an excess of loss basis typically having a longer tail than business written on a pro rata basis. As time passes, for a given underwriting year, additional weight is given to the paid and incurred B-F loss development methods and eventually to the historical paid and incurred loss development methods in the reserving process. Our reinsurance operations make a number of key assumptions in reserving for medium-tail and long-tail lines, including that the pricing loss ratio is the best estimate of the ultimate loss ratio at the time the contract is entered into, historical paid and reported development patterns are stable and claims personnel and underwriters’ analyses of our exposure to major events are our best estimate of our exposure to the known claims on those events. The expected loss ratios used in our reinsurance operations’ initial reserving process for medium-tail and long-tail contracts have varied over time due to changes in pricing, terms and conditions and reinsurance structure. As the credibility of historical experience for earlier underwriting years increases, the experience from these underwriting years is used in the actuarial analysis to determine future underwriting year expected loss ratios, adjusted for changes in pricing, loss trends, terms and conditions and reinsurance structure.

The following tables present information on the reinsurance segment’s short-duration insurance contracts:


Casualty ($000’s)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	152,359	$	155,796	$	149,799	$	145,259	$	141,023	$	138,257	$	132,142	$	129,307	$	130,769	$	126,543	$	16,905	N/A
2012			145,770		143,950		139,762		127,563		117,551		111,938		120,655		123,884		122,312		28,208		N/A
2013					168,738		161,993		157,804		151,340		139,221		137,591		133,857		137,978		37,566		N/A
2014							219,506		224,801		222,220		236,505		233,033		242,792		243,067		48,039		N/A
2015									225,908		224,525		233,644		240,886		244,861		251,747		63,133		N/A
2016											217,499		229,862		254,032		268,880		275,966		65,394		N/A
2017													268,353		253,959		269,434		297,998		79,858		N/A
2018															282,010		296,507		286,944		81,666		N/A
2019																	338,581		347,126		178,981		N/A
2020																			393,328		333,679		N/A
																	Total		$	2,483,009

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	2,353	$	11,509	$	21,684	$	38,998	$	55,027	$	64,486	$	71,457	$	76,722	$	82,728	$	87,463
2012			1,371		8,637		14,875		25,738		36,809		48,109		59,877		70,308		76,287
2013					2,549		10,050		23,209		43,263		54,797		63,415		71,150		77,089
2014							3,962		16,160		40,949		63,636		91,366		114,798		135,101
2015									4,490		20,340		47,381		71,231		97,007		120,889
2016											5,763		25,720		51,822		86,989		114,096
2017													6,441		29,414		59,377		108,591
2018															7,588		31,118		106,454
2019																	15,824		57,682
2020																			17,822
									Total										901,474
									All outstanding liabilities before 2011, net of reinsurance										303,572
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	1,885,107


Property catastrophe ($000’s)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	215,493	$	195,232	$	176,170	$	162,993	$	159,174	$	158,465	$	156,150	$	152,082	$	150,971	$	150,459	$	—	N/A
2012			150,570		123,288		108,787		102,254		99,998		99,178		97,143		97,252		96,637		132		N/A
2013					69,044		49,507		37,714		33,143		30,567		29,848		28,910		29,060		(132)		N/A
2014							46,774		32,188		26,438		23,491		21,671		20,957		20,845		(10)		N/A
2015									34,895		19,282		12,724		6,643		4,746		4,102		67		N/A
2016											26,671		19,556		15,313		11,487		9,027		1,302		N/A
2017													82,521		49,340		46,354		32,747		87		N/A
2018															75,309		63,106		44,448		5,855		N/A
2019																	51,202		35,789		9,545		N/A
2020																			273,069		50,368		N/A
																	Total		$	696,183

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	63,175	$	89,042	$	122,060	$	137,400	$	143,141	$	145,774	$	147,929	$	148,338	$	148,929	$	148,403
2012			25,850		70,843		83,929		90,834		92,993		94,122		94,732		95,419		95,521
2013					12,283		19,701		24,911		26,953		28,859		29,117		29,119		29,846
2014							13,702		20,635		19,293		20,170		19,786		19,993		20,146
2015									(3,161)		(1,825)		2,660		2,959		2,537		2,630
2016											(6,752)		2,646		3,057		4,515		3,803
2017													30,173		30,224		34,534		24,209
2018															25,505		14,232		26,189
2019																	3,878		17,393
2020																			53,495
									Total										421,635
									All outstanding liabilities before 2011, net of reinsurance										1,624
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	276,172


Property excluding property catastrophe ($000’s)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	208,318	$	180,624	$	168,122	$	164,414	$	160,264	$	158,952	$	156,647	$	155,606	$	154,261	$	152,753	$	801	N/A
2012			156,980		122,552		124,408		119,838		115,425		113,201		111,722		109,122		103,596		251		N/A
2013					116,130		77,474		71,100		66,669		64,950		64,162		62,949		63,769		770		N/A
2014							144,299		118,056		99,891		91,272		88,994		84,679		82,899		2,063		N/A
2015									215,856		189,735		185,288		189,702		188,992		177,928		12,275		N/A
2016											178,103		147,154		139,032		138,008		141,789		15,986		N/A
2017													262,387		245,333		231,062		223,442		17,528		N/A
2018															223,917		241,754		238,162		18,520		N/A
2019																	219,130		209,696		32,266		N/A
2020																			387,907		167,596		N/A
																	Total		$	1,781,941

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	47,949	$	122,137	$	142,081	$	146,626	$	148,684	$	149,788	$	150,028	$	150,302	$	151,322	$	150,417
2012			26,158		78,416		93,752		102,445		103,452		104,091		103,274		103,216		103,076
2013					26,068		43,068		50,208		53,389		54,202		56,090		61,601		62,591
2014							23,641		63,144		72,133		77,098		78,753		79,146		79,009
2015									75,725		119,578		150,207		161,447		166,632		160,271
2016											33,418		96,174		99,954		105,486		113,336
2017													25,807		118,658		148,638		156,523
2018															29,724		108,263		153,599
2019																	43,809		125,698
2020																			102,474
									Total										1,206,994
									All outstanding liabilities before 2011, net of reinsurance										6,125
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	581,072


Marine and aviation ($000’s)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	39,359	$	32,956	$	35,889	$	32,436	$	28,811	$	27,213	$	27,264	$	24,871	$	23,792	$	23,517	$	1,317	N/A
2012			59,117		58,956		55,172		52,428		51,223		49,865		46,183		43,165		41,316		2,228		N/A
2013					39,538		38,509		37,545		36,101		35,993		35,248		34,806		31,087		5,039		N/A
2014							31,333		29,576		27,763		26,059		24,050		23,695		22,347		5,044		N/A
2015									34,066		37,875		31,953		31,910		30,964		28,618		4,738		N/A
2016											27,409		22,804		23,622		19,344		17,029		8,230		N/A
2017													28,868		26,407		23,878		20,853		6,783		N/A
2018															28,355		26,395		24,957		7,490		N/A
2019																	49,466		55,921		17,208		N/A
2020																			84,238		58,896		N/A
																	Total		$	349,883

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	4,421	$	12,122	$	16,530	$	19,235	$	15,959	$	16,634	$	21,988	$	21,911	$	21,973	$	21,979
2012			2,664		11,480		27,623		33,428		35,174		36,379		37,871		38,164		38,257
2013					5,109		14,330		19,075		22,111		23,135		24,427		24,804		24,520
2014							4,373		8,221		11,872		12,748		14,939		15,376		16,253
2015									11		13,476		19,120		20,971		22,773		22,456
2016											(7,300)		(1,655)		552		3,292		5,900
2017													1,659		6,546		9,372		11,037
2018															2,006		7,087		11,384
2019																	11,015		21,930
2020																			9,339
									Total										183,055
									All outstanding liabilities before 2011, net of reinsurance										16,534
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	183,362


Other specialty ($000’s)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																					December 31, 2020
																					Total of IBNR liabilities plus expected development on reported claims		Cumulative number of reported claims
	Year ended December 31,
Accident year	2011 unaudited		2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2011	$	115,554	$	100,395	$	96,117	$	94,512	$	92,703	$	91,334	$	90,727	$	88,820	$	89,163	$	87,648	$	1,058	N/A
2012			231,531		219,627		209,355		203,114		200,945		203,898		202,085		196,309		187,908		4,635		N/A
2013					259,594		232,427		222,046		218,354		219,314		216,861		216,579		210,455		10,351		N/A
2014							283,138		263,653		265,417		258,595		253,373		255,341		250,825		15,127		N/A
2015									217,666		208,927		207,220		204,179		204,458		201,046		19,996		N/A
2016											231,160		228,501		222,788		217,054		223,777		18,179		N/A
2017													282,024		271,084		260,051		259,041		40,904		N/A
2018															338,298		334,567		326,027		53,316		N/A
2019																	378,545		358,997		80,438		N/A
2020																			551,374		259,496		N/A
																	Total		$	2,657,098

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2011	$	29,717	$	59,715	$	72,298	$	77,018	$	80,642	$	82,468	$	84,815	$	85,960	$	85,643	$	85,854
2012			47,484		126,138		149,753		161,073		169,096		173,202		177,742		179,614		179,943
2013					58,962		122,813		149,617		166,100		175,892		181,279		188,746		189,147
2014							71,006		151,115		187,560		201,189		207,965		219,234		221,978
2015									56,438		118,770		143,690		150,969		160,243		168,314
2016											67,730		143,624		168,425		180,542		192,947
2017													76,847		171,632		201,378		209,005
2018															75,395		211,954		243,257
2019																	84,416		167,055
2020																			101,559
									Total										1,759,059
									All outstanding liabilities before 2011, net of reinsurance										8,956
							Liabilities for losses and loss adjustment expenses, net of reinsurance												$	906,995

The following table presents the average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance, as of December 31, 2020:


	Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Casualty	2.4	%	7.2	%	11.2	%	12.2	%	10.3	%	8.4	%	7.3	%	5.7	%	4.8	%	3.7	%
Property catastrophe	20.5	%	30.2	%	25.1	%	2.9	%	(1.2)	%	1.4	%	0.7	%	1.2	%	0.2	%	(0.3)	%
Property excluding property catastrophe	26.4	%	39.5	%	12.8	%	5.2	%	2.3	%	0.2	%	2.0	%	0.6	%	0.3	%	(0.6)	%
Marine and aviation	6.5	%	27.2	%	19.1	%	10.0	%	4.2	%	2.2	%	7.9	%	(0.2)	%	0.2	%	—	%
Other specialty	26.9	%	33.9	%	12.3	%	5.2	%	4.3	%	3.1	%	2.4	%	0.8	%	(0.1)	%	0.2	%

Mortgage Segment

The Company’s mortgage segment includes (1) direct mortgage insurance in the U.S., (2) direct mortgage insurance in Europe, (3) global mortgage reinsurance and (4) participation in various GSE credit risk-sharing products. The latter three categories along with second lien and student loan exposures are excluded on the basis of insignificance for the purposes of presenting disclosures related to short duration contracts.

For direct mortgage insurance business, the Company establishes case reserves for loans that have been reported as delinquent by loan servicers as well as those that are delinquent but not reported (IBNR reserves). The Company’s U.S. mortgage insurance operations also reserve for the expenses of adjusting claims related to these delinquencies. The trigger that creates a case reserve estimate is that an insured loan is reported to us as being two payments in arrears. The actuarial reviews and documentation created in the reserving process are completed in accordance with

generally accepted actuarial standards. The selected assumptions reflect actuarial judgment based on the analysis of historical data and experience combined with information concerning current underwriting, economic, judicial, regulatory and other influences on ultimate claim settlements.

Because the reserving process requires the Company to forecast future conditions, it is inherently uncertain and requires significant judgment and estimation. The use of different estimates would result in the establishment of different reserve levels. Additionally, changes in estimates are likely to occur from period to period as economic conditions change, and the ultimate liability may vary significantly from the estimates used. Major risk factors include (but are not limited to) changes in home prices and borrower equity, which can limit the borrower’s ability to sell the property and satisfy the outstanding loan balance, and changes in unemployment, which can affect the borrower’s income and ability to make mortgage payments. The unique nature of the COVID-19 pandemic, with no historical

precedent, adds further uncertainty to current reserve estimates.

The lead actuarial methodology used by the Company is a frequency-severity method based on the inventory of pending delinquencies. Each month the loan servicers report the delinquency status of each insured loan. Using the frequency-severity method allows the Company to take advantage of its knowledge of the number of delinquent loans and the coverage provided (“risk size”) on those loans by directly relating the reserves to these amounts. The delinquencies are grouped into homogeneous cohorts for analysis, reflecting product type and age of delinquency. A claim rate is then developed for each cohort which represents the frequency with which the delinquencies become claims. The claim frequency rates are based on an analysis of the patterns of emerging cure counts and claim counts, the foreclosure status of the pending delinquencies, the product and geographical mix of the delinquencies and our view of future economic and claim conditions, which include trends in home prices and unemployment. Claim rates can vary materially by age of delinquency, depending on the mix of delinquencies and economic conditions.

Claim size severity estimates are determined by examining the risk sizes on the delinquent loans and estimating the portion of risk that will be paid, as well as any expenses. This is done based on a review of historical development patterns, an assessment of economic conditions and the level of equity the borrowers may have in their homes, as well as considering economic conditions and loss mitigation opportunities. Mortgage insurance is generally not subject to large claim sizes, as with some other lines of insurance. A claim size over $250,000 is rare, and this helps reduce the volatility of claim size estimates.

The claim rate and claim size assumptions generate case reserves for the population of reported delinquencies. The reserve for unreported delinquencies (included in IBNR reserves) is estimated by looking at historical patterns of reporting. Claim rates and claim sizes can then be assigned to estimated unreported delinquencies using assumptions made in the establishment of case reserves.

Mortgage insurance Loss Reserves are short-tail, in the sense that the vast majority of delinquencies are resolved within two years of being reported. Due to the forbearances and foreclosure moratoriums associated with COVID-19, settlement timelines may be extended. While reserves are initially analyzed by reserve cohort, as described above, they are also rolled up by underwriting year to ensure that reserve assumptions are consistent with the performance of the underwriting year. The accuracy of prior reserve assumptions is also checked in hindsight to determine if adjustments to the assumptions are needed.

Loss Reserves for the Company’s mortgage reinsurance business and GSE credit-risk sharing transactions are comprised of case reserves and IBNR reserves. The Company’s mortgage reinsurance operations receive reports of delinquent loans and claims notices from ceding companies and record case reserves based upon the amount of reserves recommended by the ceding company. In addition, specific claim and delinquency information reported by ceding companies is used in the process of estimating IBNR reserves.

The tables below include the acquired business of United Guaranty Corporation (“UGC”) (including UGRIC), across all periods presented. Consistent with prior practice, the Company provides accident years 2012 and forward in the disclosures below. The following table presents information on the mortgage segment’s short-duration insurance contracts:


Direct mortgage insurance business in the U.S. ($000’s except claim count)
Incurred losses and allocated loss adjustment expenses, net of reinsurance																			December 31, 2020
																				Total of IBNR liabilities plus expected development on reported claims	Cumulative number of paid claims
Year ended December 31,
Accident year	2012 unaudited		2013 unaudited		2014 unaudited		2015 unaudited		2016 unaudited		2017 unaudited		2018 unaudited		2019 unaudited		2020
2012	$	520,835	$	480,592	$	475,317	$	469,238	$	467,296	$	459,467	$	458,065	$	456,286	$	456,331		5	15,083
2013			469,311		419,668		411,793		405,809		395,693		393,149		390,987		391,062			3	9,471
2014					316,095		297,151		279,434		266,027		265,992		261,091		262,682			7	6,290
2015							222,790		197,238		198,001		194,677		189,235		190,913			4	4,543
2016									183,556		170,532		148,715		140,608		142,392			7	3,411
2017											179,376		132,220		107,255		108,181			630	2,429
2018													132,318		96,357		89,120			1,281	1,512
2019															108,424		119,253			2,921	566
2020																	420,003			15,879	32
															Total		$	2,179,937

Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2012	(106,065)		186,605		327,605		395,695		426,024		441,577		448,151		452,348		453,587
2013			41,447		203,957		308,956		353,189		373,909		382,200		386,853		387,894
2014					20,099		129,159		201,925		233,879		247,038		254,175		256,285
2015							16,159		92,431		151,222		171,337		180,321		183,472
2016									11,462		72,201		113,357		127,286		131,161
2017											8,622		48,112		78,650		87,317
2018													3,966		31,478		50,135
2019															2,899		20,105
2020																	1,040
																	1,570,996
									All outstanding liabilities before 2012, net of reinsurance								14,504
							Liabilities for losses and loss adjustment expenses, net of reinsurance										$	623,445

The following table presents the average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance, as of December 31, 2020:


Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9
U.S. Primary	3.0	%	39.0	%	27.8	%	11.1	%	4.9	%	2.5	%	1.1	%	0.6	%	0.3	%

Other Segment

Loss Reserves for the ‘other’ segment (i.e., Watford) are comprised of case reserves, ACRs and IBNR reserves. For all business assumed by Watford, the Company acts as reinsurance underwriting manager, provides actuarial and risk management services and recommends a level of Loss Reserves to Watford. The Company does not guarantee or provide credit support for Watford, and the Company’s financial exposure to Watford is limited to its investment in Watford’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The estimation of Loss Reserves for Watford is subject to the same risk factors as the estimation of Loss Reserves for the Company’s insurance, reinsurance

and mortgage segments as described earlier. Watford performs its own reserve reviews and sets its reserves independently. As noted previously, the Company determined that amounts in the ‘other’ segment are insignificant for the purposes of these footnote disclosures.

For the year ended December 31, 2020, the Company did not make any significant changes in its methodologies or assumptions as described above (a) to determine the presented amounts of IBNR reserves, (b) for expected development on case reserves.

The Company measures claim frequency information on an individual claim count basis. Claim counts are provided for the insurance and mortgage segments, where reliable

information is available. For insurance business, any claim which is reported to the Company is included in the count, even if it is subsequently settled without liability to the Company. The Company does not include claim count information for losses from U.S. insurance pool business where individual loss information is unavailable and impracticable to obtain. For mortgage business, only delinquencies which subsequently become claims are included in the claim count. For reinsurance business, claim counts are not provided. A significant amount of the Company’s reinsurance business is written on a proportional basis, for which individual loss information is typically unavailable and impracticable to obtain.

For the year ended December 31, 2020, the Company did not make any significant changes in its methodologies or assumptions as described above to calculate the cumulative claim frequency.

The following table represents a reconciliation of the disclosures of net incurred and paid loss development tables to the reserve for losses and loss adjustment expenses at December 31, 2020:


	December 31, 2020
Net outstanding liabilities
Insurance
Property, energy, marine and aviation	$	492,588
Third party occurrence business	2,558,285
Third party claims-made business	1,377,179
Multi-line and other specialty	1,273,791
Reinsurance
Casualty	1,885,107
Property catastrophe	276,172
Property excluding property catastrophe	581,072
Marine and aviation	183,362
Other specialty	906,995
Mortgage
U.S. primary	623,445
Other short duration lines not included in disclosures (1)	1,765,397
Total for short duration lines	11,923,393

Unpaid losses and loss adjustment expenses recoverable
Insurance
Property, energy, marine and aviation	331,817
Third party occurrence business	1,272,034
Third party claims-made business	808,238
Multi-line and other specialty	246,915
Reinsurance
Casualty	536,809
Property catastrophe	266,946
Property excluding property catastrophe	70,108
Marine and aviation	63,781
Other specialty	317,011
Mortgage
U.S. primary	52,016
Other short duration lines not included in disclosures (2)	1,090,486
Intercompany eliminations	(718,507)
Total for short duration lines	4,337,654

Lines other than short duration	75,369
Discounting	(23,326)
Unallocated claims adjustment expenses	200,839
	252,882

Total gross reserves for losses and loss adjustment expenses	$	16,513,929

(1) Includes net outstanding liabilities of $1.2 billion for the ‘other’ segment.

(2) Includes unpaid loss and loss adjustment expenses recoverable of $153.1 million related to the loss portfolio transfer reinsurance agreement.