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RESERVE FOR LOSSES AND LOSS EXPENSES

9 Months Ended

Sep. 30, 2021

Reserve Roll-Forward

The following table presents a reconciliation of the Company's beginning and ending gross reserve for losses and loss expenses and net reserves for unpaid losses and loss expenses:


	Nine months ended September 30,
	2021		2020

Gross reserve for losses and loss expenses, beginning of period	$	13,926,766	$	12,752,081
Less reinsurance recoverable on unpaid losses and loss expenses, beginning of period	(4,496,641)		(3,877,756)
Net reserve for unpaid losses and loss expenses, beginning of period	9,430,125		8,874,325

Net incurred losses and loss expenses related to:
Current year	2,315,697		2,473,363
Prior years	(23,138)		(9,351)
	2,292,559		2,464,012

Net paid losses and loss expenses related to:
Current year	(263,969)		(227,332)
Prior years	(1,778,479)		(1,831,192)
	(2,042,448)		(2,058,524)

Foreign exchange and other	(10,885)		35,992

Net reserve for unpaid losses and loss expenses, end of period	9,669,351		9,315,805
Reinsurance recoverable on unpaid losses and loss expenses, end of period	4,989,645		4,337,683
Gross reserve for losses and loss expenses, end of period	$	14,658,996	$	13,653,488

The Company writes business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in its financial results. During the nine months ended September 30, 2021, the Company recognized catastrophe and weather-related losses, net of reinstatement premiums of $389 million (2020: $576 million).

At September 30, 2021, foreign exchange and other included a reduction in reinsurance recoverable on unpaid losses of $49 million related to the Reinsurance to Close of the 2018 year of account of Syndicate 2007.

Estimates for Significant Catastrophe Events

At September 30, 2021, net reserves for losses and loss expenses included estimated amounts for numerous catastrophe events. The magnitude and complexity of losses arising from certain of these events inherently increase the level of uncertainty and, therefore, the level of management judgment involved in arriving at estimated net reserves for losses and loss expenses. These events include Hurricane Ida, the July European Floods and U.S. Winter Storms Uri and Viola in 2021, the COVID-19 pandemic, Hurricanes Laura, Sally, Zeta and Delta, the Midwest derecho and wildfires across the West Coast of the United States in 2020, Japanese Typhoons Hagibis, Faxai and Tapah, Hurricane Dorian and the Australia Wildfires in 2019 and Hurricanes Michael and Florence, California Wildfires and Typhoon Jebi in 2018. As a result, actual losses for these events may ultimately differ materially from current estimates.

Prior Year Reserve Development

The Company's net favorable prior year reserve development arises from changes to estimates of losses and loss expenses related to loss events that occurred in previous calendar years. The following table presents net prior year reserve development by segment:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)

Insurance	$	5,418	$	270	$	13,351	$	4,521
Reinsurance	5,594		314		9,787		4,830
Total	$	11,012	$	584	$	23,138	$	9,351

The following sections provide further details on net prior year reserve development by segment, reserving class and accident year.

Insurance Segment:

The following table maps lines of business to reserve classes and the expected claim tails:

Insurance segment

Reserve class and tail

Property and other

Marine

Aviation

Credit and political risk

Professional lines

Liability

Short

Short/Medium

Medium

Long

Reported lines of business

Property

Marine

Terrorism

Aviation

Credit and political risk

Professional lines

Liability

Accident and health

Discontinued lines - Novae

Prior year reserve development by reserve class was as follows:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)

Property and other	$	12,486	$	6,907	$	63,167	$	42,688
Marine	4,189		4,095		23,411		633
Aviation	3,958		(326)		9,802		5,667
Credit and political risk	7,610		871		6,294		(223)
Professional lines	(20,759)		(7,287)		(68,405)		(19,086)
Liability	(2,066)		(3,990)		(20,918)		(25,158)
Total	$	5,418	$	270	$	13,351	$	4,521

For the three months ended September 30, 2021, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:

•$12 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 to 2020 catastrophe events and better than expected loss emergence attributable to the global property and E&S property books of business related to the 2020 accident year.

•$8 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2019 and 2020 accident year.

•$4 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence attributable to the cargo and specie books of business mainly related to the 2018 and 2020 accident years.

•$4 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2020 accident year.

•$21 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the International cyber program book of business mainly related to the 2019 accident year, the International management liability solutions book of business mainly related to the 2016 to 2019 accident years and the U.S. professional firms book of business mainly related to the 2018 and 2019 accident years.

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:

•$7 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2019 catastrophe events.

•$4 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the 2018 accident year.

•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in the loss estimate attributable to a specific large claim related to the 2009 accident year.

•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.

For the nine months ended September 30, 2021, we recognized $13 million of net favorable prior year reserve development, the principal components of which were:

•$63 million of net favorable prior year reserve development on property and other business primarily due to decreases in loss estimates attributable to specific large claims related to the 2011 and 2012 accident years, better than expected loss emergence attributable to the 2017 to 2020 catastrophe events, the global property and E&S property books of business related to the 2020 accident year and the accident and health book of business related to the 2019 and 2020 accident years.

•$23 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence attributable to cargo, offshore energy and specie books of business mainly related to the 2017, 2018 and 2020 accident years and decreases in loss estimates attributable to specific large claims related to 2012 accident year.

•$10 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence attributable to the International book of business related to the 2020 accident year.

•$6 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2019 accident year.

•$68 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the International management liability solutions and financial institutions books of businesses related to the 2016 to 2019 accident years, the professional firms book of business mainly related to the 2018 and 2019 accident years, the International cyber book of business mainly related to the 2019 accident year, the U.S. commercial management solutions book of business mainly related to the 2018 and 2019 accident years and the European program and European management liability solutions books of business mainly related to the 2018 accident year.

•$21 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the program book of business mainly related to the 2018 and 2019 accident years.

For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:

•$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence related to 2018 and 2019 accident years, and to the 2017 to 2019 catastrophe events, and decreases in loss estimates attributable to specific large claims related to the 2014 and 2016 accident years.

•$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence related to the 2018 and 2019 accident years.

•$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.

•$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident years and an increase in the loss estimate attributable to a specific large claim related to the 2009 accident year.

Reinsurance Segment:

The following table maps lines of business to reserve classes and the expected claim tails:

Reinsurance segment

Reserve class and tail

Property and other

Credit and surety

Professional lines

Motor

Liability

Short

Medium

Long

Reported lines of business

Catastrophe

Property

Credit and surety

Professional lines

Motor

Liability

Engineering

Agriculture

Marine and aviation

Accident and health

Discontinued lines - Novae

Prior year reserve development by reserve class was as follows:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)		Favorable (Adverse)

Property and other	$	(5,486)	$	3,126	$	7,792	$	(4,961)
Credit and surety	8,624		11,184		(1,231)		27,927
Professional lines	(3,244)		(13,776)		(14,048)		(13,493)
Motor	8,345		1,214		38,431		18,732
Liability	(2,645)		(1,434)		(21,157)		(23,375)
Total	$	5,594	$	314	$	9,787	$	4,830

For the three months ended September 30, 2021, we recognized $6 million of net favorable prior year reserve development, the principal components of which were:

•$9 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence attributable to the European surety book of business related to several accident years.

•$8 million of net favorable prior year reserve development on motor business primarily due to proportional treaty business mainly related to the 2018 and 2019 accident years.

•$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2019 accident years, and attributable to the 2017 and 2020 catastrophe events, partially offset by better than expected loss emergence attributable to the agriculture book of business mainly related to the 2020 accident year.

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:

•$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to 2017 and 2019 accident years.

•$14 million of net adverse prior year reserve development on professional lines business primarily due to an increase in the loss estimate attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.

For the nine months ended September 30, 2021, we recognized $10 million of net favorable prior year reserve development, the principal components of which were:

•$38 million of net favorable prior year reserve development on motor business primarily due to proportional and non-proportional treaty business mainly related to 2016 and older accident years.

•$8 million of net favorable prior year development on property and other business primarily due to decreases in the loss estimates attributable to specific large claims related to the 2009, 2019 and 2020 accident years, better than expected loss emergence attributable to the 2017 to 2019 catastrophe events, and to the accident and health book of business mainly related to the 2020 accident year, partially offset by reserve strengthening within the engineering line of business mainly related to the 2016 to 2019 accident years and attributable to the 2020 catastrophe events.

•$21 million of net adverse prior year reserve development on liability business primarily due to increases in loss estimates attributable to specific large claims related to the 2017 accident year and reserve strengthening within the commercial auto liability and U.S. multiline/regional books of business related to the 2018 accident year.

•$14 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the U.S. and European books of business related to the 2015 to 2018 accident year and increases in the loss estimates attributable to specific large claims related to the 2015 to 2017 accident years.

For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:

•$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.

•$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.

•$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.

•$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in the loss estimate attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.

•$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and aviation line of business mainly related to the 2017 accident year, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.