Reserve for Claims and Claim Expenses

6 Months Ended

Jun. 30, 2020

RESERVE FOR CLAIMS AND CLAIM EXPENSES

The Company believes the most significant accounting judgment made by management is its estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts the Company sells. The Company establishes its claims and claim expense reserves by taking claims reported to the Company by insureds and ceding companies, but which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred but not yet reported to the Company, or incurred but not enough reported to the Company (collectively referred to as “IBNR”) and, if deemed necessary, adding costs for additional case reserves which represent the Company’s estimates for claims related to specific contracts previously reported to the Company which it believes may not be adequately estimated by the client as of that date, or adequately covered in the application of IBNR.

The following table summarizes the Company’s claims and claim expense reserves by segment, allocated between case reserves, additional case reserves and IBNR:



At June 30, 2020	Case Reserves		Additional Case Reserves		IBNR		Total
Property	$	1,095,511	$	1,650,244	$	842,395	$	3,588,150
Casualty and Specialty	1,682,299		127,588		3,967,100		5,776,987
Other	332		—		—		332
Total	$	2,778,142	$	1,777,832	$	4,809,495	$	9,365,469

At December 31, 2019
Property	$	1,253,406	$	1,631,223	$	1,189,221	$	4,073,850
Casualty and Specialty	1,596,426		129,720		3,583,913		5,310,059
Other	440		—		—		440
Total	$	2,850,272	$	1,760,943	$	4,773,134	$	9,384,349

Activity in the liability for unpaid claims and claim expenses is summarized as follows:



Six months ended June 30,	2020		2019
Net reserves as of beginning of period	$	6,593,052	$	3,704,050
Net incurred related to:
Current year	1,082,732		684,481
Prior years	(1,506)		(4,073)
Total net incurred	1,081,226		680,408
Net paid related to:
Current year	61,625		52,332
Prior years	1,007,916		570,561
Total net paid	1,069,541		622,893
Foreign exchange (1)	(13,626)		(642)
Amounts acquired (2)	—		1,858,775
Net reserves as of end of period	6,591,111		5,619,698
Reinsurance recoverable as of end of period	2,774,358		2,865,150
Gross reserves as of end of period	$	9,365,469	$	8,484,848

(1) Reflects the impact of the foreign exchange revaluation of net reserves denominated in non-U.S. dollars as at the balance sheet date.

(2) Represents the fair value of TMR's reserves for claims and claim expenses, net of reinsurance recoverables, acquired at March 22, 2019.

Prior Year Development of the Reserve for Net Claims and Claim Expenses

The Company’s estimates of claims and claim expense reserves are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of the Company’s reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer’s estimate at a point in time of its ultimate liability, and because there are numerous factors that affect reserves and claims payments that cannot be determined with certainty in advance, the Company’s ultimate payments will vary, perhaps materially, from its estimates of reserves. If the Company determines in a subsequent period that adjustments to its previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. On a net basis, the Company’s cumulative favorable or unfavorable development is generally reduced by offsetting changes in its reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums and redeemable noncontrolling interest, all of which generally move in the opposite direction to changes in the Company’s ultimate claims and claim expenses.

The following table details the Company’s prior year development by segment of its liability for unpaid claims and claim expenses:



Six months ended June 30,	2020		2019
	(Favorable) adverse development		(Favorable) adverse development
Property	$	7,444	$	12,640
Casualty and Specialty	(8,799)		(16,730)
Other	(151)		17
Total net favorable development of prior accident years net claims and claim expenses	$	(1,506)	$	(4,073)

Changes to prior year estimated claims reserves increased net income by $1.5 million during the six months ended June 30, 2020 (2019 - increased net income by $4.1 million), excluding the consideration of changes in reinstatement, adjustment or other premium items, profit commissions, redeemable noncontrolling interests and income tax.

Property Segment

The following tables detail the development of the Company’s liability for unpaid claims and claim expenses for its Property segment, allocated between large and small catastrophe net claims and claim expenses and attritional net claims and claim expenses, included in the other line item:



Six months ended June 30,	2020
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
2019 Large Loss Events	$	(19,940)
2018 Large Loss Events	(12,306)
2017 Large Loss Events	(3,825)




Other	7,004
Total large catastrophe events	(29,067)
Small catastrophe events and attritional loss movements


Other small catastrophe events and attritional loss movements	36,511
Total small catastrophe events and attritional loss movements	36,511


Total net adverse development of prior accident years net claims and claim expenses	$	7,444

The net adverse development of prior accident years net claims and claim expenses within the Company’s Property segment in the six months ended June 30, 2020 of $7.4 million was comprised of net adverse development of $43.5 million primarily within the Company’s other property class of business and principally driven by higher than expected attritional losses related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods, combined with the impact of certain of the Company’s whole account ceded protections. Partially offsetting this adverse development was favorable development on prior accident years net claims and claim expenses associated with the following large catastrophe events:

•$19.9 million associated with Hurricane Dorian and Typhoon Faxai, Typhoon Hagibis and losses associated with aggregate loss contracts (collectively, the “2019 Large Loss Events”);

•$12.3 million associated with Typhoons Jebi, Mangkhut and Trami, Hurricane Florence, the wildfires in California during the third and fourth quarters of 2018, Hurricane Michael and certain losses associated with aggregate loss contracts (collectively, the ”2018 Large Loss Events”); and

•$3.8 million associated with Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake, the wildfires in California during the fourth quarter of 2017 and certain losses associated with aggregate loss contracts (collectively, the “2017 Large Loss Events”).



Six months ended June 30,	2019
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
2017 Large Loss Events	$	(56,234)
2018 Large Loss Events	52,132
Other	1,412
Total large catastrophe events	(2,690)
Small catastrophe events and attritional loss movements
Other small catastrophe events and attritional loss movements	9,521
Total small catastrophe events and attritional loss movements	9,521
Total catastrophe and attritional net claims and claim expenses	6,831
Actuarial assumption changes	5,809
Total net adverse development of prior accident years net claims and claim expenses	$	12,640

The net adverse development of prior accident years net claims and claim expenses within the Company’s Property segment in the six months ended June 30, 2019 of $12.6 million was comprised of net favorable development of $2.7 million related to large catastrophe events, net adverse development of $9.5 million related to small catastrophe events and attritional loss movements and net adverse development of $5.8 million related to actuarial assumption changes. Included in net favorable development of prior accident years net claims and claim expenses from large catastrophe events within the Property segment was $56.2 million of net decreases in the estimated ultimate losses associated with the 2017 Large Loss Events, partially offset by $52.1 million of net increases in the estimated ultimate losses associated with the 2018 Large Loss Events.

The Company’s Property segment also experienced net adverse development of $9.5 million associated with a number of other small catastrophe events and attritional loss movements primarily driven by increases in the estimated ultimate net claims and claim expenses within the Company’s other property class of business.

Casualty and Specialty Segment

The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Casualty and Specialty segment:



Six months ended June 30,	2020		2019
	(Favorable) adverse development		(Favorable) adverse development
Actuarial methods	$	(8,799)	$	(28,850)
Actuarial assumption changes	—		12,120
Total net favorable development of prior accident years net claims and claim expenses	$	(8,799)	$	(16,730)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment of $8.8 million in the six months ended June 30, 2020 was due to reported losses generally coming in better than expected on attritional net claims and claim expenses.

The net favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment was $16.7 million in the six months ended June 30, 2019 was comprised of net favorable development of $28.9 million related to reported losses generally coming in lower than expected on attritional net claims and claim expenses and certain assumption changes across a number of

lines of business, partially offset by net adverse development of $12.1 million associated with actuarial assumption changes.