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Reserve for Losses and Loss Adjustment Expenses
 12 Months Ended
Dec. 31, 2021
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]  
Reserve for losses and loss adjustment expenses
The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:
Year Ended December 31,
202120202019
Reserve for losses and loss adjustment expenses at beginning of year$16,513,929 $13,891,842 $11,853,297 
Unpaid losses and loss adjustment expenses recoverable4,314,855 4,082,650 2,814,291 
Net reserve for losses and loss adjustment expenses at beginning of year12,199,074 9,809,192 9,039,006 
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year4,940,987 4,851,051 3,297,037 
Prior years(356,184)(161,452)(163,585)
Total net incurred losses and loss adjustment expenses4,584,803 4,689,599 3,133,452 
Net losses and loss adjustment expense reserves of acquired business (1)104,176 — 209,486 
Retroactive reinsurance transactions (2)(444,147)182,210 (225,500)
Impact of deconsolidation of Somers (3)(1,460,611)— — 
Foreign exchange (gains) losses and other1,181 179,190 36,003 
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year(734,846)(661,529)(621,202)
Prior years(2,091,705)(1,999,588)(1,762,053)
Total net paid losses and loss adjustment expenses(2,826,551)(2,661,117)(2,383,255)
Net reserve for losses and loss adjustment expenses at end of year12,157,925 12,199,074 9,809,192 
Unpaid losses and loss adjustment expenses recoverable5,599,231 4,314,855 4,082,650 
Reserve for losses and loss adjustment expenses at end of year$17,757,156 $16,513,929 $13,891,842 
(1)    Represents activity related to the Company’s acquisitions in the 2021 and the 2019 period. See Note 2.
(2)    See ‘Retroactive Reinsurance Transactions’ section.
(3)    See note 12.

Development on Prior Year Loss Reserves
Year Ended December 31, 2021
During 2021, the Company recorded estimated net favorable development on prior year loss reserves of $356.2 million, which consisted of net favorable development of $16.2 million from the insurance segment, $178.8 million from the reinsurance segment, $169.6 million from the mortgage segment, partially offset by $8.4 million of adverse development from the ‘other’ segment (activity prior to the deconsolidation of Somers).
The insurance segment’s net favorable development of $16.2 million, or 0.4 points of net earned premium, consisted of $109.8 million of net favorable development in short-tailed and long-tailed lines mostly offset by $93.5 million of net adverse development from medium-tailed lines. Net favorable development of $81.7 million in short-tailed lines reflected $38.9 million of favorable development from
property (excluding marine), primarily from the 2018 to 2020 accident years (i.e., the year in which a loss occurred), $26.7 million of favorable development in lenders products, primarily from the 2020 accident year, and $16.2 million of favorable development on travel and accident, primarily from the 2016 to 2020 accident years. Net favorable development of $28.1 million in long-tailed lines reflected favorable development in construction, national accounts and alternative markets, primarily from the 2016 to 2019 accident years, partially offset by adverse development in executive assurance, primarily from the 2015, 2017 and 2018 accident years. Net adverse development in medium-tailed lines reflected $57.6 million of adverse development in contract binding, primarily from the 2013 to 2019 accident years and $30.8 million of adverse development in professional liability, primarily from the 2018 to 2020 accident years.
The reinsurance segment’s net favorable development of $178.8 million, or 6.3 points of net earned premium, consisted of $184.1 million of net favorable development
from short-tailed and medium-tailed lines, partially offset by $5.3 million of net adverse development from long-tailed lines. Net favorable development of $175.5 million in short-tailed lines reflected $123.3 million from other specialty lines, primarily from the 2014 to 2019 underwriting years (i.e., losses attributable to contracts having an inception or renewal date within the given twelve-month period), and $88.6 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2020 underwriting years. Such amounts were partially offset by adverse development of $36.4 million from property catastrophe, primarily from the 2020 underwriting year. Adverse development in long-tailed lines reflected an increase in casualty reserves, primarily from the 2018 underwriting year.
The mortgage segment’s net favorable development of $169.6 million, or 13.2 points of net earned premium. Approximately a third of this development came from the U.S. first lien portfolio, which benefited from improving economic conditions and rising home prices, resulting in reduced claim rate assumptions primarily associated with pre-pandemic delinquencies. Various vintage CRT contracts also experienced similar effects and contributed to the favorable development, including the effect of contracts called by the GSEs. Subrogation recoveries on second lien and student loan business and international business also contributed to the favorable development.
Year Ended December 31, 2020
During 2020, the Company recorded estimated net favorable development on prior year loss reserves of $161.5 million, which consisted of net favorable development of $7.8 million from the insurance segment, $134.0 million from the reinsurance segment, $19.0 million from the mortgage segment, and $0.7 million from the ‘other’ segment.
The insurance segment’s net favorable development of $7.8 million, or 0.3 points of net earned premium, consisted of $83.0 million of net favorable development in short-tailed and long-tailed lines partially offset by $75.2 million of net adverse development from medium-tailed lines. Net favorable development of $33.6 million in short-tailed lines reflected $21.6 million of favorable development from property (excluding marine), primarily from the 2015 to 2018 accident years, and $8.4 million of favorable development on travel and accident, primarily from the 2019 accident year. Net favorable development of $49.4 million in long-tailed lines included $38.8 million of favorable development related to other business, including alternative markets and excess workers’ compensation, across all accident years, and $9.3 million of favorable development related to construction business. Net adverse development in medium-tailed lines reflected $37.9 million of adverse development in surety business, primarily from the 2019 accident year,
$23.1 million in contract binding business, primarily from the 2016 to 2019 accident years, and $16.0 million in program business, primarily from the 2016 to 2019 accident years.
The reinsurance segment’s net favorable development of $134.0 million, or 6.2 points of net earned premium, consisted of $155.9 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $21.9 million of net adverse development from long-tailed lines. Net favorable development of $144.0 million in short-tailed lines reflected $87.7 million related to property catastrophe and property other than property catastrophe business, primarily from the 2015 to 2019 underwriting years, and $53.6 million from other specialty lines, across most underwriting years. The net reduction of loss estimates for the reinsurance segment’s short-tailed lines primarily resulted from varying levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during 2020. Adverse development in long-tailed lines reflected an increase in casualty reserves, primarily from the 2012 to 2015 underwriting years.
The mortgage segment’s net favorable development of $19.0 million, or 1.4 points of net earned premium, included $16.2 million of favorable development on U.S. primary mortgage insurance business. Such development was primarily driven by subrogation recoveries on second lien business and student loan business.
Year Ended December 31, 2019
During 2019, the Company recorded estimated net favorable development on prior year loss reserves of $163.6 million, which consisted of net favorable development of $15.8 million from the insurance segment, $46.4 million from the reinsurance segment and $125.2 million from the mortgage segment, partially offset by $23.8 million of net adverse development from the ‘other’ segment.
The insurance segment’s net favorable development of $15.8 million, or 0.7 points of net earned premium, consisted of $54.9 million of net favorable development from short-tailed lines and $39.1 million of net adverse development from medium-tailed and long-tailed lines. Net favorable development in short-tailed lines primarily resulted from lenders products and property (including special risk other than marine) reserves across all accident years, partially offset by net adverse development in travel business, primarily from the 2018 accident year. Net adverse development in medium-tailed and long-tailed lines of $39.1 million was primarily due to net adverse development of $33.6 million in contract binding business, primarily from the 2013 to 2017 accident years, and $30.1 million in programs, primarily from the 2014 and 2018 accident years. Such amounts were partially offset by net favorable
development of $19.3 million in professional liability business, primarily from the 2013 to 2016 accident years, and $15.8 million in surety business, primarily from the 2014 to 2016 accident years.
The reinsurance segment’s net favorable development of $46.4 million, or 3.2 points of net earned premium, consisted of $70.5 million of net favorable development from short-tailed lines and $16.0 million of net favorable development from medium-tailed lines, partially offset by $40.1 million of net adverse development from long-tailed lines. Favorable development in short-tailed lines included $33.7 million from property catastrophe and property other than property catastrophe reserves, primarily from the 2017 and 2018 underwriting years and $40.8 million in other specialty, primarily from 2016 to 2018 underwriting years. The net reduction of loss estimates for the reinsurance segment’s short-tailed lines primarily resulted from varying levels of reported and paid claims activity than previously anticipated which led to decreases in certain loss ratio selections during 2019. Net favorable development of $16.0 million in medium-tailed lines included reductions in marine and aviation reserves, primarily from the 2011 to 2017 underwriting years. Net adverse development in long-tailed lines of $40.1 million was primarily due to net adverse development of $44.5 million in casualty business, primarily from the 2013 to 2018 underwriting years.
The mortgage segment’s net favorable development of $125.2 million, or 9.2 points of net earned premium, included $117.1 million of favorable development on U.S. primary mortgage insurance business. Such development was primarily driven by lower than expected claim rates on first lien business and subrogation recoveries on second lien business.
Retroactive Reinsurance Transactions
In 2021, the Company entered into a retroactive reinsurance transaction with third party reinsurer to reinsure run-off liabilities associated with certain U.S. insurance exposures.
In 2021, the Company entered into a reinsurance to close with the related party, in connection with the 2018 and prior years of account for certain London syndicate business. See Note 16.
In 2020, the Company entered into a reinsurance-to-close agreement related to a third party arrangement covering the 2017 and prior years of account for certain London syndicate business.
In 2019, the Company entered into a retroactive reinsurance transaction with third party reinsurer to reinsure run-off liabilities associated with certain U.S. insurance exposures, which was commuted in 2020.