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Reserve for Losses and Loss Expenses | 12 Months Ended
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Dec. 31, 2012
Insurance Loss Reserves [Abstract] |
Reserves for Losses and Loss Expenses | Reserves for Losses and Loss Expenses The table below provides a roll forward of reserves for losses and loss expenses for beginning and ending reserve balances:
($ in thousands) |  | 2012 |  | 2011 |  | 2010
Gross reserves for losses and loss expenses, at beginning of year |  | $ | 3,144,924 |  |  | 2,830,058 |  |  | 2,745,799 |
Less: reinsurance recoverable on unpaid losses and loss expenses, at beginning of year |  | 549,490 |  |  | 313,739 |  |  | 271,610 |
Net reserves for losses and loss expenses, at beginning of year |  | 2,595,434 |  |  | 2,516,319 |  |  | 2,474,189 |
Incurred losses and loss expenses for claims occurring in the: |  |  |  |  |  |  |  |  |
Current year |  | 1,146,591 |  |  | 1,113,733 |  |  | 1,025,707 |
Prior years |  | (25,601 | ) |  | (38,746 | ) |  | (43,589 | )
Total incurred losses and loss expenses |  | 1,120,990 |  |  | 1,074,987 |  |  | 982,118 |
Paid losses and loss expenses for claims occurring in the: |  |  |  |  |  |  |  |  |
Current year |  | 424,496 |  |  | 440,786 |  |  | 378,650 |
Prior years |  | 632,742 |  |  | 569,944 |  |  | 561,338 |
Total paid losses and loss expenses |  | 1,057,238 |  |  | 1,010,730 |  |  | 939,988 |
Acquisition of MUSIC losses and loss expense reserves |  | — |  |  | 14,858 |  |  | — |
Net reserves for losses and loss expenses, at end of year |  | 2,659,186 |  |  | 2,595,434 |  |  | 2,516,319 |
Add: Reinsurance recoverable on unpaid losses and loss expenses, at end of year 1 |  | 1,409,755 |  |  | 549,490 |  |  | 313,739 |
Gross reserves for losses and loss expenses at end of year |  | $ | 4,068,941 |  |  | 3,144,924 |  |  | 2,830,058 |
1 Includes $44.0 million related to the acquisition of MUSIC at December 31, 2011. The net losses and loss expense reserves increased by $63.8 million in 2012, $79.1 million in 2011, and $42.1 million in 2010. The losses and loss expense reserves are net of anticipated recoveries for salvage and subrogation claims, which amounted to $62.2 million for 2012, $67.6 million for 2011, and $55.0 million for 2010. The changes in the net losses and loss expense reserves were the result of elevated catastrophe losses in 2012, growth in exposures, anticipated loss trends, changes in reinsurance retentions, as well as normal reserve development inherent in the uncertainty in establishing reserves for losses and loss expenses. As additional information is collected in the loss settlement process, reserves are adjusted accordingly. These adjustments are reflected in the Consolidated Statements of Income in the period in which such adjustments are recognized. These changes could have a material impact on the results of operations of future periods when the adjustments are made. In 2012 we experienced overall favorable loss development of approximately $26 million as compared to $39 million in 2011 and $44 million in 2010. The following table summarizes the prior year development by line of business:
Favorable/(Unfavorable) Prior Year Development |  |  |  |  |  |
($ in millions) |  | 2012 |  | 2011 |  | 2010
General Liability |  | $ | (3 | ) |  | 12 |  |  | 26 |
Commercial Automobile |  | 9 |  |  | 13 |  |  | 28 |
Workers' Compensation |  | (2 | ) |  | (7 | ) |  | (22 | )
Business Owners' Policies |  | 9 |  |  | 11 |  |  | 3 |
Commercial Property |  | 3 |  |  | 6 |  |  | 3 |
Homeowners |  | 9 |  |  | 4 |  |  | 6 |
Personal Automobile |  | — |  |  | (1 | ) |  | (2 | )
Other |  | 1 |  |  | 1 |  |  | 2 |
Total |  | $ | 26 |  |  | 39 |  |  | 44 |
The 2012 prior year development of $26 million includes $18 million of casualty development and $8 million of property development. The property development was primarily related to the favorable non-catastrophe loss activity that occurred in the first quarter of 2012 mostly in the 2011 accident year. The casualty lines were driven by favorable development in the 2007 through 2009 accident years; partially offset by unfavorable development in accident year 2011. The favorable development was driven by lower than expected severities in all of the major casualty lines, which represents a consistent trend in recent years. The unfavorable development in accident year 2011 was driven by: (i) higher than expected severities in the workers compensation and general liability lines; and (ii) higher than expected frequencies in the commercial auto line. This was partially offset by continued favorable development in the homeowners liability line, due to lower expected severity for this year. The 2011 prior year development of $39 million includes $30 million of casualty development and $9 million of property development. Overall, the prior year development was driven by accident years 2006, 2008, and 2009, partially offset by the 2010 accident year. The favorable development was driven by the following: (i) premises and operations coverages on our general liability line; (ii) lower frequencies in the commercial automobile line; and (iii) continued favorable reported loss emergence on the liability coverage in our business owners' policy line. The unfavorable development in accident year 2010 was driven by the following: (i) increased severities experienced in our workers compensation line; and (ii) products coverage on our general liability line. The 2010 prior year favorable development of $44 million includes $39 million of casualty development and $5 million of property development. Overall, the prior year development was driven by accident years 2003 through 2006, partially offset by the 2008 accident year. The favorable development was driven by our premises and operations coverages in our general liability line. The unfavorable development in the 2008 accident year was driven by increases in average severity in our workers compensation line. Reserves established for liability insurance include exposure to asbestos and environmental claims. These claims have arisen primarily from insured exposures in municipal government, small non-manufacturing commercial risk, and homeowners policies. The emergence of these claims is slow and highly unpredictable. There are significant uncertainties in estimating our exposure to environmental claims (for both case and IBNR reserves) resulting from lack of relevant historical data, the delayed and inconsistent reporting patterns associated with these claims, and uncertainty as to the number and identity of claimants and complex legal and coverage issues. Legal issues that arise in environmental cases include federal or state venue, choice of law, causation, admissibility of evidence, allocation of damages and contribution among joint defendants, successor and predecessor liability, and whether direct action against insurers can be maintained. Coverage issues that arise in environmental cases include: the interpretation and application of policy exclusions; the determination and calculation of policy limits; the determination of the ultimate amount of a loss; the extent to which a loss is covered by a policy, if at all; the obligation of an insurer to defend a claim; and the extent to which a party can prove the existence of coverage. Courts have reached different and sometimes inconsistent conclusions on these legal and coverage issues. We do not discount to present value that portion of our losses and loss expense reserves expected to be paid in future periods. The following table details our losses and loss expense reserves for various asbestos and environmental claims:
|  | 2012
($ in millions) |  | Gross |  | Net
Asbestos |  | $ | 9.2 |  |  | 7.8 |
Landfill sites |  | 13.0 |  |  | 8.1 |
Leaking underground storage tanks |  | 13.4 |  |  | 11.9 |
Total |  | $ | 35.6 |  |  | 27.8 |
Estimating IBNR reserves for asbestos and environmental claims is difficult because of the delayed and inconsistent reporting patterns associated with these claims. In addition, there are significant uncertainties associated with estimating critical assumptions, such as average clean-up costs, third-party costs, potentially responsible party shares, allocation of damages, litigation and coverage costs, and potential state and federal legislative changes. Normal historically based actuarial approaches cannot be applied to environmental claims because past loss history is not indicative of future potential environmental losses. In addition, while certain alternative models can be applied, such models can produce significantly different results with small changes in assumptions. The following table provides a roll forward of gross and net environmental incurred losses and loss expenses and related reserves thereon:
|  | 2012 |  | 2011 |  | 2010
($ in thousands) |  | Gross |  | Net |  | Gross |  | Net |  | Gross |  | Net
Asbestos |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reserves for losses and loss expenses at beginning of year |  | $ | 8,412 |  |  | 6,586 |  |  | 9,979 |  |  | 8,167 |  |  | 11,056 |  |  | 9,244 |
Incurred losses and loss expenses |  | 1,696 |  |  | 2,000 |  |  | 2,014 |  |  | 2,000 |  |  | (338 | ) |  | (338 | )
Less: losses and loss expenses paid |  | (938 | ) |  | (795 | ) |  | (3,581 | ) |  | (3,581 | ) |  | (739 | ) |  | (739 | )
Reserves for losses and loss expenses at the end of year |  | $ | 9,170 |  |  | 7,791 |  |  | 8,412 |  |  | 6,586 |  |  | 9,979 |  |  | 8,167 |
Environmental |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reserves for losses and loss expenses at beginning of year |  | $ | 27,600 |  |  | 21,330 |  |  | 33,630 |  |  | 27,599 |  |  | 35,864 |  |  | 28,803 |
Incurred losses and loss expenses |  | 1,363 |  |  | 1,000 |  |  | (4,285 | ) |  | (4,750 | ) |  | 1,500 |  |  | 2,276 |
Less: losses and loss expenses paid |  | (2,558 | ) |  | (2,352 | ) |  | (1,745 | ) |  | (1,519 | ) |  | (3,734 | ) |  | (3,480 | )
Reserves for losses and loss expenses at the end of year |  | $ | 26,405 |  |  | 19,978 |  |  | 27,600 |  |  | 21,330 |  |  | 33,630 |  |  | 27,599 |
Total Environmental Claims |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reserves for losses and loss expenses at beginning of year |  | $ | 36,012 |  |  | 27,916 |  |  | 43,609 |  |  | 35,766 |  |  | 46,920 |  |  | 38,047 |
Incurred losses and loss expenses |  | 3,059 |  |  | 3,000 |  |  | (2,271 | ) |  | (2,750 | ) |  | 1,162 |  |  | 1,938 |
Less: losses and loss expenses paid |  | (3,496 | ) |  | (3,147 | ) |  | (5,326 | ) |  | (5,100 | ) |  | (4,473 | ) |  | (4,219 | )
Reserves for losses and loss expenses at the end of year |  | $ | 35,575 |  |  | 27,769 |  |  | 36,012 |  |  | 27,916 |  |  | 43,609 |  |  | 35,766 |

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- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6482852&loc=d3e14931-158439 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6482485&loc=d3e14764-158437 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 94-5 -Paragraph 11 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6482485&loc=d3e14754-158437 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 13 -Article 7 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 60 -Paragraph 60 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03.13(a)(1),(b)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 + Details
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