Unpaid Losses And Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2020

Liability for Unpaid Claims and Claims Adjustment Expense, Incurred Claims [Abstract]

Unpaid Losses And Loss Adjustment Expenses

Unpaid Losses and Loss Adjustment Expenses

The following table presents a reconciliation of consolidated beginning and ending reserves for losses and loss adjustment expenses.


	Six Months Ended June 30,
(dollars in thousands)	2020		2019
Net reserves for losses and loss adjustment expenses, beginning of year	$	9,475,261	$	9,214,443
Effect of foreign currency rate changes on beginning of year balance	(75,037)		(2,866)
Effect of adoption of ASC 326 (see note 2)	3,849		—
Adjusted net reserves for losses and loss adjustment expenses, beginning of year	9,404,073		9,211,577
Incurred losses and loss adjustment expenses:
Current accident year	2,057,729		1,554,682
Prior accident years	(268,220)		(188,949)
Total incurred losses and loss adjustment expenses	1,789,509		1,365,733
Payments:
Current accident year	217,466		206,461
Prior accident years	1,033,176		1,173,743
Total payments	1,250,642		1,380,204
Effect of foreign currency rate changes on current year activity	(1,997)		760

Net reserves for losses and loss adjustment expenses, end of period	9,940,943		9,197,866
Reinsurance recoverables on unpaid losses	5,304,562		5,137,917
Gross reserves for losses and loss adjustment expenses, end of period	$	15,245,505	$	14,335,783

Underwriting results for the six months ended June 30, 2020 included $325.0 million of net losses and loss adjustment expenses directly attributed to the COVID-19 pandemic, for which COVID-19 was identified as the proximate, or direct, cause of loss. These losses and loss adjustment expenses were net of ceded losses of $58.0 million.

Both the gross and net loss estimates for direct losses attributed to the COVID-19 pandemic represent the Company's best estimate of losses based upon information currently available. The Company's estimate for these losses and loss adjustment expenses is based on reported claims, as well as detailed policy level reviews and reviews of in-force assumed reinsurance contracts for potential exposures. This estimate also considered analysis provided by brokers and claims counsel. There are no historical events with similar characteristics to COVID-19, and therefore the Company has no past loss experience on which to base its estimates. Additionally, the economic and social impacts of the pandemic continue to evolve.

Significant assumptions on which the Company's estimates of reserves for COVID-19 losses and loss adjustment expenses are based include:

•the scope of coverage provided under the Company's policies, particularly those that provide for business interruption coverage;

•coverage provided under the Company's ceded reinsurance contracts;

•the expected duration of the disruption caused by the COVID-19 pandemic; and

•the ability of insureds to mitigate some or all of their losses.

The Company's estimates are based on broad assumptions about coverage, liability and reinsurance, which ultimately may be subjected to judicial review or government action. Additionally, it is highly likely that there will be significant litigation involved in the handling of claims associated with COVID-19, and in certain instances, assessing the validity of policy exclusions for pandemics and interpreting policy terms to determine coverage for pandemics, which are in the process of being tested in various judicial systems. While the Company believes the net reserves for losses and loss adjustment expenses for COVID-19 as of June 30, 2020 are adequate based on information available at this time, the Company will continue to closely monitor reported claims, government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising from the pandemic and will adjust the estimates of gross and net losses as new information becomes available. Such adjustments to the Company's reserves for COVID-19 losses and loss adjustment expenses may be material to the Company's results of operations, financial condition and cash flows.

For the six months ended June 30, 2020, incurred losses and loss adjustment expenses included $268.2 million of favorable development on prior years' loss reserves, which included $206.6 million of favorable development on the Company's professional liability, general liability and workers' compensation product lines within the Insurance segment and property and general liability product lines within the Reinsurance segment.For the six months ended June 30, 2019, incurred losses and loss adjustment expenses included $188.9 million of favorable development on prior years' loss reserves, which included $168.1 million of favorable development on the Company's general liability, workers' compensation and personal lines product lines within the Insurance segment and aviation, whole account and auto product lines within the Reinsurance segment.