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Reserve for Losses and Loss Adjustment Expenses
 12 Months Ended
Dec. 31, 2023
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,
202320222021
Reserve for losses and loss adjustment expenses at beginning of year$20,032 $17,757 $16,514 
Unpaid losses and loss adjustment expenses recoverable6,280 5,599 4,315 
Net reserve for losses and loss adjustment expenses at beginning of year13,752 12,158 12,199 
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year6,784 5,797 4,940 
Prior years(538)(769)(355)
Total net incurred losses and loss adjustment expenses6,246 5,028 4,585 
Net losses and loss adjustment expense reserves of acquired business (1)— — 104 
Retroactive reinsurance transactions (2)— — (444)
Impact of deconsolidation of Somers (3)— — (1,461)
Foreign exchange (gains) losses and other157 (293)2 
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year(1,081)(888)(734)
Prior years(3,012)(2,253)(2,093)
Total net paid losses and loss adjustment expenses(4,093)(3,141)(2,827)
Net reserve for losses and loss adjustment expenses at end of year16,062 13,752 12,158 
Unpaid losses and loss adjustment expenses recoverable6,690 6,280 5,599 
Reserve for losses and loss adjustment expenses at end of year$22,752 $20,032 $17,757 
(1)    Represents activity related to the Company’s acquisitions in the 2021 period. See note 2, “Acquisitions.”
(2)    See ‘Retroactive Reinsurance Transactions’ section.
Development on Prior Year Loss Reserves
Year Ended December 31, 2023
During 2023, the Company recorded estimated net favorable development on prior year loss reserves of $538 million, which consisted of net favorable development of $42 million from the insurance segment, $152 million from the reinsurance segment and $344 million from the mortgage segment.
The insurance segment’s net favorable development of $42 million, or 0.8 points of net earned premium, consisted of $107 million of net favorable development in short and long-tailed lines partially offset by $65 million of net adverse development from medium-tailed lines. Net favorable development in short-tailed lines reflected $32 million of favorable development in property (excluding marine), primarily from the 2022 accident year (i.e., the year in which a loss occurred), $22 million of favorable development related to warranty and lenders solutions business, primarily
from the 2022 accident year, and $15 million of favorable development related to travel and accident business, primarily from the 2020 and 2022 accident years. Net favorable development in long-tailed lines included $28 million of favorable development in executive assurance business, primarily from the 2019 and 2021 accident years, and $17 million of favorable development in alternative markets business, primarily from the 2021 and prior accident years. Such amounts were partially offset by $6 million of net adverse development in construction and national accounts, primarily from the 2020 to 2022 accident years. Net adverse development in medium-tailed lines reflected $50 million of adverse development in professional liability business, primarily from the 2017 to 2020 accident years, and $21 million of adverse development in contract binding business, primarily from 2020 and prior accident years, partially offset by $12 million of favorable development in marine business, primarily from the 2020 and 2021 accident years.
The reinsurance segment’s net favorable development of $152 million, or 2.6 points of net earned premium, consisted of $202 million of net favorable development from short and medium-tailed lines, partially offset by $50 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $93 million of favorable development from property other than property catastrophe business, primarily from the 2020 to 2022 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), $51 million of favorable development from property catastrophe business, primarily from the 2019 to 2022 underwriting years, $35 million from other specialty business, primarily from the 2021 underwriting year, and $13 million of favorable development from other lines of business, primarily from the 2020 underwriting year. Net favorable development in medium-tailed lines reflected $9 million from marine and aviation business, primarily from 2021 and prior underwriting years. Net adverse development in long-tailed lines primarily reflected $46 million from casualty business, primarily from the 2013 to 2020 underwriting years.
The mortgage segment net favorable development was $344 million, or 29.7 points, for the 2023 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 to 2022 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.
Year Ended December 31, 2022
During 2022, the Company recorded estimated net favorable development on prior year loss reserves of $769 million, which consisted of net favorable development of $25 million from the insurance segment, $190 million from the reinsurance segment and $554 million from the mortgage segment.
The insurance segment’s net favorable development of $25 million, or 0.6 points of net earned premium, consisted of $55 million of net favorable development in short-tailed lines partially offset by $30 million of net adverse development from medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $37 million of favorable development in warranty and lenders solutions, primarily from the 2021 accident year, and $15 million of favorable development related to travel and accident business, primarily from the 2020 and 2021 accident years. Net adverse development in medium-tailed lines reflected $25 million of adverse development in professional liability business, primarily from the 2013 to 2015 and 2018 to 2020 accident years, and $6 million of adverse development in contract binding business, across most accident years, partially offset by $13 million of favorable development in marine business, across most accident years.
Net adverse development in long-tail lines reflected $19 million of adverse development related to casualty business, primarily from the 2020 and 2021 accident years, and $7 million of adverse development on construction and national accounts, primarily from the 2017, 2020 and 2021 accident years. This is partially offset by $22 million of favorable development in other business, including alternative markets and excess workers’ compensation, primarily from the 2019 and prior accident years.
The reinsurance segment’s net favorable development of $190 million, or 4.8 points of net earned premium, consisted of $196 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $5 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $109 million of favorable development from property other than property catastrophe business, primarily from the 2018 to 2021 underwriting years, $24 million of favorable development from property catastrophe business, primarily from the 2018 to 2020 underwriting years, and $35 million from other specialty business, primarily from the 2016 and 2021 underwriting years. Net favorable development in medium-tailed lines reflected $28 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines primarily reflected $5 million in casualty, spread across many prior underwriting years.
The mortgage segment experienced net favorable development of $554 million, or 47.8 points of net earned premium, with the majority of reserve releases being on COVID-related delinquencies associated with the U.S. first lien portfolio from the 2020 and 2021 accident years. The Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.
Year Ended December 31, 2021
During 2021, the Company recorded estimated net favorable development on prior year loss reserves of $355 million, which consisted of net favorable development of $16 million from the insurance segment, $179 million from the reinsurance segment, $170 million from the mortgage segment, partially offset by $8 million of adverse development from the ‘other’ segment (activity prior to the deconsolidation of Somers).
The insurance segment’s net favorable development of $16 million, or 0.4 points of net earned premium, consisted of $110 million of net favorable development in short-tailed and long-tailed lines mostly offset by $94 million of net adverse development from medium-tailed lines. Net favorable development of $82 million in short-tailed lines reflected $39 million of favorable development from property
(excluding marine), primarily from the 2018 to 2020 accident years, $27 million of favorable development in warranty and lenders solutions, primarily from the 2020 accident year, and $16 million of favorable development on travel and accident, primarily from the 2016 to 2020 accident years. Net favorable development of $28 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 $58 million of adverse development in contract binding, primarily from the 2013 to 2019 accident years and $31 million of adverse development in professional liability, primarily from the 2018 to 2020 accident years.
The reinsurance segment’s net favorable development of $179 million, or 6.3 points of net earned premium, consisted of $184 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $5 million of net adverse development from long-tailed lines. Net favorable development of $176 million in short-tailed lines reflected $123 million from other specialty lines, primarily from the 2014 to 2019 underwriting years, and $89 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 million from property catastrophe, primarily from the 2020 underwriting year. Adverse development in long-tailed lines reflected an increase in casualty, primarily from the 2018 underwriting year.
The mortgage segment experienced net favorable development of $170 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.
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, “Transactions with Related Parties”.