| Unpaid Losses And Loss Adjustment Expenses | Unpaid Losses and Loss Adjustment Expenses a) The following table presents a reconciliation of consolidated beginning and ending reserves for losses and loss adjustment expenses. Years Ended December 31, (dollars in thousands) 2018 2017 2016 Net reserves for losses and loss adjustment expenses, beginning of year $ 8,964,945 $ 8,108,717 $ 8,235,288 Foreign currency movements (69,119 ) 110,079 (129,692 ) Adjusted net reserves for losses and loss adjustment expenses, beginning of year 8,895,826 8,218,796 8,105,596 Incurred losses and loss adjustment expenses: Current accident year 3,371,699 3,367,223 2,555,902 Prior accident years (551,040 ) (497,627 ) (493,495 ) Total incurred losses and loss adjustment expenses 2,820,659 2,869,596 2,062,407 Payments: Current accident year 666,515 671,112 532,140 Prior accident years 1,835,027 1,513,580 1,529,206 Total payments 2,501,542 2,184,692 2,061,346 Effect of foreign currency rate changes (500 ) 3,752 2,060 Net reserves for losses and loss adjustment expenses of acquired insurance companies — 57,493 — Net reserves for losses and loss adjustment expenses, end of year 9,214,443 8,964,945 8,108,717 Reinsurance recoverable on unpaid losses 5,062,036 4,619,336 2,006,945 Gross reserves for losses and loss adjustment expenses, end of year $ 14,276,479 $ 13,584,281 $ 10,115,662 In 2018, underwriting results included $287.3 million of underwriting loss from Hurricanes Florence and Michael, Typhoon Jebi and wildfires in California (2018 Catastrophes). The underwriting loss on the 2018 Catastrophes was comprised of $292.8 million of estimated net losses and loss adjustment expenses partially offset by $5.4 million of net assumed reinstatement premiums. The estimated net losses and loss adjustment expenses on the 2018 Catastrophes were net of estimated ceded losses of $244.1 million . Incurred losses and loss adjustment expenses in 2018 included $551.0 million of favorable development on prior years' loss reserves, which included $424.1 million of favorable development on the Company's general liability, workers' compensation, professional liability and marine and energy product lines within the Insurance segment and surety and marine and energy product lines within the Reinsurance segment. In 2017, underwriting results included $565.3 million of underwriting loss from Hurricanes Harvey, Irma, Maria and Nate as well as the earthquakes in Mexico and wildfires in California (2017 Catastrophes). The underwriting loss on the 2017 Catastrophes was comprised of $585.4 million of estimated net losses and loss adjustment expenses and $20.1 million of net assumed reinstatement premiums. The estimated net losses and loss adjustment expenses on the 2017 Catastrophes for the year ended December 31, 2017 were net of estimated ceded losses of $490.3 million . Incurred losses and loss adjustment expenses in 2017 included $497.6 million of favorable development on prior years' loss reserves, which included $422.9 million of favorable development on the Company's general liability, marine and energy product lines, professional liability, and workers' compensation product lines as well as personal lines business within the Insurance segment and property product lines within the Reinsurance segment. Favorable development in 2017 was partially offset by $85.0 million of adverse development on our auto product line resulting from a decrease in the discount rate, known as the Ogden Rate, used to calculate lump sum awards in U.K. bodily injury cases. In 2017, the Company recorded net reserves for losses and loss adjustment expenses of $57.5 million as a result of acquisitions completed during the year. All acquired net reserves were recorded at fair value as part of the Company's purchase accounting. See note 2 for a discussion of the Company's acquisitions. In 2017, the Company recognized a previously deferred gain of $3.9 million , which is included in losses and loss adjustment expenses on the consolidated statement of income and comprehensive income. This amount is excluded from the prior years' incurred losses and loss adjustment expenses for 2017 in the above table as the deferred gain was included in other liabilities on the consolidated balance sheet as of December 31, 2016, rather than unpaid losses and loss adjustment expenses. In 2016, incurred losses and loss adjustment expenses included $493.5 million of favorable development on prior years' loss reserves, which included $418.0 million of favorable development on the Company's general liability, property and marine and energy product lines within the Insurance segment and property product lines in the Reinsurance segment, as actual claims reporting and development patterns on prior accident years have been more favorable than the Company's actuarial analyses initially anticipated. Favorable development in 2016 was partially offset by $71.2 million of adverse development on the Company's specified medical and medical malpractice product lines within the Insurance segment. In 2016, incurred losses and loss adjustment expenses in the above table exclude $11.7 million of favorable development on prior years loss reserves included in losses and loss adjustment expenses on the consolidated statement of income and comprehensive income related to the commutation of a property and casualty deposit contract, for which the underlying deposit liability was included in other liabilities on the consolidated balance sheet as of December 31, 2015, rather than unpaid losses and loss adjustment expenses. The Company uses a variety of techniques to establish the liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amounts payable. The Company maintains reserves for specific claims incurred and reported (case reserves) and reserves for claims incurred but not reported (IBNR reserves), which include expected development on reported claims. The Company does not discount its reserves for losses and loss adjustment expenses to reflect estimated present value, except for reserves held for a runoff book of U.K. motor business. Additionally, reserves assumed in connection with an acquisition are recorded at fair value at the acquisition date. The fair value adjustment includes an adjustment to reflect the acquired reserves for losses and loss adjustment expenses at present value plus a risk premium, the net of which is amortized to losses and loss adjustment expenses within the consolidated statements of income. As of any balance sheet date, all claims have not yet been reported, and some claims may not be reported for many years. As a result, the liability for unpaid losses and loss adjustment expenses includes significant estimates for incurred but not reported claims. There is normally a time lag between when a loss event occurs and when it is actually reported to the Company. The actuarial methods that the Company uses to estimate losses have been designed to address the lag in loss reporting as well as the delay in obtaining information that would allow the Company to more accurately estimate future payments. There is also a time lag between cedents establishing case reserves and re-estimating their reserves, and notifying the Company of the new or revised case reserves. As a result, the reporting lag is more pronounced in reinsurance contracts than in the insurance contracts due to the reliance on ceding companies to report their claims. On reinsurance transactions, the reporting lag will generally be 60 to 90 days after the end of a reporting period, but can be longer in some cases. Based on the experience of the Company's actuaries and management, loss development factors and trending techniques are selected to mitigate the difficulties caused by reporting lags. The loss development and trending factor selections are evaluated at least annually and updated using cedent specific and industry data. IBNR reserves are based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that would modify past experience. IBNR reserves, which include expected development on reported claims, are generally calculated by subtracting paid losses and loss adjustment expenses and case reserves from estimated ultimate losses and loss adjustment expenses. IBNR reserves were 64% of total unpaid losses and loss adjustment expenses at both December 31, 2018 and 2017 . In establishing liabilities for unpaid losses and loss adjustment expenses, the Company's actuaries estimate an ultimate loss ratio, by accident year or policy year, for each product line with input from underwriting and claims associates. For product lines in which loss reserves are established on a policy year basis, the Company has developed a methodology to convert from policy year to accident year for financial reporting purposes. In estimating an ultimate loss ratio for a particular line of business, the actuaries may use one or more actuarial reserving methods and select from these a single point estimate. To varying degrees, these methods include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity, policyholder loss experience, industry loss experience and changes in market conditions, policy forms and exposures. Greater judgment may be required when new product lines are introduced or when there have been changes in claims handling practices, as the statistical data available may be insufficient. These estimates also reflect implicit and explicit assumptions regarding the potential effects of external factors, including economic and social inflation, judicial decisions, changes in law, general economic conditions and recent trends in these factors. Management believes the process of evaluating past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. Loss reserves are established at management's best estimate, which is generally higher than the corresponding actuarially calculated point estimate. The actuarial point estimate represents the actuaries' estimate of the most likely amount that will ultimately be paid to settle the loss reserves that are recorded at a particular point in time; however, there is inherent uncertainty in the point estimate as it is the expected value in a range of possible reserve estimates. In some cases, actuarial analyses, which are based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other cases, management's perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors where management's perspective may differ from that of the actuaries include: the credibility and timeliness of claims information received from third parties, economic and social inflation, judicial decisions, changes in law, changes in underwriting or claims handling practices, general economic conditions, the risk of moral hazard and other current and developing trends within the insurance and reinsurance markets, including the effects of competition. As a result, the actuarially calculated point estimate for each line of business represents the starting point for management's quarterly review of loss reserves. Inherent in the Company's reserving practices is the desire to establish loss reserves that are more likely redundant than deficient. As such, the Company seeks to establish loss reserves that will ultimately prove to be adequate. As part of the Company's acquisition of insurance operations, to the extent the reserving philosophy of the acquired business differs from the Company's reserving philosophy, the post-acquisition loss reserves will be strengthened until total loss reserves are consistent with the Company's target level of confidence. Furthermore, the Company's philosophy is to price its insurance products to make an underwriting profit. Management continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claim payments and other information, but uncertainty remains regarding the potential for adverse development of estimated ultimate liabilities. Management currently believes the Company's gross and net reserves are adequate. However, there is no precise method for evaluating the impact of any significant factor on the adequacy of reserves, and actual results will differ from original estimates. b) The following tables present undiscounted loss development information, by accident year, for the Company's Insurance and Reinsurance segments, including cumulative incurred and paid losses and allocated loss adjustment expenses, net of reinsurance, as well as the corresponding amount of IBNR reserves as of December 31, 2018 . This level of disaggregation is consistent with how the Company analyzes loss reserves for both internal and external reporting purposes. The loss development information for the years ended December 31, 2012 through 2017 is presented as supplementary information. Incurred losses in both our Insurance and Reinsurance segments generally remain outstanding more than seven years; however, data prior to 2012 is not practically available by segment as a result of a change in the Company's reportable segments in 2014. Additionally, reserves for the Company's international operations are determined on a policy year basis and historical data prior to 2012 does not exist by accident year. All amounts included in the tables below related to transactions denominated in a foreign currency have been translated into U.S. Dollars using the exchange rates in effect at December 31, 2018 . The difference between the segment loss development implied by the tables for the year ended December 31, 2018 and actual losses and loss adjustment expenses on prior accident years for the Insurance and Reinsurance segments for the year ended December 31, 2018 is primarily attributed to the fact that amounts presented in these tables exclude amounts attributed to the 2011 and prior accident years, exclude unallocated loss adjustment expenses and exclude amounts attributable to reserve discounting and fair value adjustments recorded in conjunction with acquisitions, as well as differences in the presentation of foreign currency movements, as described above. The Insurance segment table below also includes claim frequency information, by accident year. The Company defines a claim as a single claim incident, per policy, which may include multiple claimants and multiple coverages on a single policy. Claim counts include claims closed without a payment as well as claims where the Company is monitoring to determine if an exposure exists, even if a reserve has not been established. All of the business contained within the Company's Reinsurance segment represents treaty business that is assumed from other insurance or reinsurance companies, for which the Company does not have access to the underlying claim counts. Further, this business includes both quota share and excess of loss treaty reinsurance, through which only a portion of each reported claim results in losses to the Company. As such, the Company has excluded claim count information from the Reinsurance segment disclosures. In 2013, the Company completed the acquisition of Alterra Capital Holdings Limited (Alterra), the results of which are included in both of the Company's reportable segments. Ultimate incurred losses and loss adjustment expenses, net of reinsurance as of December 31, 2013 include outstanding liabilities for losses and loss adjustment expenses of Alterra as of the acquisition date, by accident year, and not in any prior periods. Pre-acquisition data is not available by segment and accident year due in part to the impact of significant intercompany reinsurance contracts. Additionally, Alterra reserves were historically determined on a policy year basis and pre-acquisition data does not exist in a format that can be used to determine accident year. Following the acquisition, ongoing business attributable to Alterra was integrated with the Company's other insurance operations and is not separately tracked. Insurance Segment Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Total of Incurred-but-Not-Reported Liabilities, Net of Reinsurance Cumulative Number of Reported Claims Unaudited As of December 31, (in thousands) As of December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 December 31, 2018 2012 $ 1,369,219 $ 1,609,802 $ 1,489,026 $ 1,427,255 $ 1,395,103 $ 1,361,513 $ 1,348,062 $ 119,585 127 2013 1,735,667 1,694,879 1,525,750 1,462,652 1,428,733 1,387,804 200,744 87 2014 1,862,947 1,695,698 1,627,960 1,570,428 1,522,132 213,237 78 2015 1,783,064 1,710,271 1,585,447 1,530,354 291,364 84 2016 1,871,455 1,786,959 1,686,374 378,681 89 2017 2,326,966 2,160,771 691,736 116 2018 2,452,747 1,466,264 147 Total $ 12,088,244 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Unaudited As of December 31, As of December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2012 $ 233,371 $ 567,450 $ 780,067 $ 937,643 $ 1,052,859 $ 1,117,221 $ 1,150,793 2013 271,439 571,548 779,023 949,370 1,037,635 1,099,985 2014 331,626 657,742 894,470 1,062,211 1,167,598 2015 322,633 665,112 876,509 1,040,377 2016 372,182 752,606 981,920 2017 438,289 990,931 2018 496,812 Total $ 6,928,416 All outstanding liabilities for unpaid losses and loss adjustment expenses before 2012, net of reinsurance 605,610 Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance $ 5,765,438 Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Insurance segment include $256.4 million and $313.3 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $36.8 million and $29.5 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and allocated loss adjustment expenses and cumulative reported claims for the 2012 and 2013 accident years exclude any claims paid or closed prior to the acquisition. Variability in claim counts is primarily attributable to claim counts associated with a personal lines product with high claim frequency and low claim severity. Cumulative reported claims for the 2012, 2013, 2017 and 2018 accident years include 66 thousand , 17 thousand , 24 thousand and 46 thousand , respectively, of claim counts associated with this product. The Company did not write this business from 2014 to 2016. The related net incurred losses and allocated loss adjustment expenses are not material to the Insurance segment. Reinsurance Segment Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Total of Incurred-but-Not-Reported Liabilities, Net of Reinsurance Unaudited As of December 31, (in thousands) As of December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 December 31, 2018 2012 $ 72,903 $ 550,343 $ 507,023 $ 485,374 $ 457,038 $ 454,839 $ 446,722 $ 62,700 2013 586,074 578,994 547,828 534,148 543,963 506,609 78,266 2014 577,123 564,720 536,247 578,688 556,775 121,489 2015 528,076 514,050 531,854 522,783 197,446 2016 523,958 533,526 531,769 199,881 2017 906,216 939,604 403,107 2018 760,161 543,670 Total $ 4,264,423 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Unaudited As of December 31, As of December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2012 $ 4,049 $ 64,460 $ 128,769 $ 183,943 $ 231,541 $ 263,811 $ 288,772 2013 71,503 155,515 209,893 268,761 301,714 331,630 2014 97,918 158,105 226,883 275,278 312,296 2015 63,924 133,932 207,985 259,366 2016 79,383 169,877 241,072 2017 158,049 359,659 2018 87,614 Total $ 1,880,409 All outstanding liabilities for unpaid losses and loss adjustment expenses before 2012, net of reinsurance 650,117 Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance $ 3,034,131 Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Reinsurance segment include $474.2 million and $536.2 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $52.6 million and $68.9 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and allocated loss adjustment expenses for the 2012 and 2013 accident years exclude any claims paid prior to the acquisition. The following table presents supplementary information about average historical claims duration as of December 31, 2018 based on the cumulative incurred and paid losses and allocated loss adjustment expenses presented above. Average Annual Percentage Payout of Incurred Losses by Age (in Years), Net of Reinsurance Unaudited 1 2 3 4 5 6 7 Insurance 20.3 % 23.1 % 14.7 % 11.4 % 7.3 % 4.6 % 2.5 % Reinsurance 12.6 % 15.5 % 13.0 % 10.6 % 7.9 % 6.6 % 5.6 % The following table reconciles the net incurred and paid loss development tables to the liability for losses and loss adjustment expenses in the consolidated balance sheet. (dollars in thousands) December 31, 2018 Net outstanding liabilities Insurance segment $ 5,765,438 Reinsurance segment 3,034,131 Other 204,069 Program services 2,561 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance 9,006,199 Reinsurance recoverable on unpaid losses Insurance segment 1,965,565 Reinsurance segment 415,900 Other 166,505 Program services 2,514,066 Total reinsurance recoverable on unpaid losses 5,062,036 Unallocated loss adjustment expenses 239,753 Unamortized discount, net of acquisition fair value adjustments, included in unpaid losses and loss adjustment expenses (31,509 ) 208,244 Total gross liability for unpaid losses and loss adjustment expenses $ 14,276,479 c) The Company's exposure to asbestos and environmental (A&E) claims primarily results from policies written by acquired insurance operations before their acquisition by the Company. The Company's exposure to A&E claims originated from umbrella, excess and commercial general liability insurance policies and assumed reinsurance contracts that were written on an occurrence basis from the 1970s to mid-1980s. Exposure also originated from claims-made policies that were designed to cover environmental risks provided that all other terms and conditions of the policy were met. A&E claims include property damage and clean-up costs related to pollution, as well as personal injury allegedly arising from exposure to hazardous materials. Development on asbestos and environmental loss reserves is monitored separately from the Company's ongoing underwriting operations and are not included in a reportable segment. The following table provides a reconciliation of beginning and ending A&E reserves for losses and loss adjustment expenses, which are a component of consolidated unpaid losses and loss adjustment expenses. Amounts included in the following table are presented before consideration of reinsurance allowances. Years Ended December 31, (dollars in thousands) 2018 2017 2016 Net reserves for A&E losses and loss adjustment expenses, beginning of year $ 104,661 $ 111,604 $ 132,869 Commutations and other (305 ) 6,827 — Adjusted net reserves for A&E losses and loss adjustment expenses, beginning of year 104,356 118,431 132,869 Incurred losses and loss adjustment expenses — 659 (5,277 ) Payments (21,308 ) (14,429 ) (15,988 ) Net reserves for A&E losses and loss adjustment expenses, end of year 83,048 104,661 111,604 Reinsurance recoverable on unpaid losses 164,663 169,866 212,300 Gross reserves for A&E losses and loss adjustment expenses, end of year $ 247,711 $ 274,527 $ 323,904 At December 31, 2018 , asbestos-related reserves were $188.3 million and $63.4 million on a gross and net basis, respectively. Net reserves for reported claims for A&E exposures were $74.4 million at December 31, 2018 . Net incurred but not reported reserves for A&E exposures were $8.7 million at December 31, 2018 . Inception-to-date net paid losses and loss adjustment expenses for A&E related exposures totaled $647.7 million at December 31, 2018 . The Company's reserves for losses and loss adjustment expenses related to A&E exposures represent management's best estimate of ultimate settlement values based on the Company's statistical analysis of these reserves, which is reviewed by the Company's independent actuaries. A&E exposures are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and unfavorable legal climate. A&E reserves could be subject to increases in the future; however, management believes the Company's gross and net A&E reserves at December 31, 2018 are adequate. |
