| Non-life and Life and Health Reserves | Non-life and Life and Health Reserves (a) Non-life reserves Non-life reserves are categorized into three types of reserves: case reserves, ACRs and IBNR reserves. Case reserves represent unpaid losses reported by the Company’s cedants and recorded by the Company. ACRs are established for particular circumstances where, on the basis of individual loss reports, the Company estimates that the particular loss or collection of losses covered by a treaty may be greater than those advised by the cedant. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves and ACRs. The Company’s gross liability for non-life reserves reported by cedants (case reserves) and those estimated by the Company (ACRs and IBNR reserves) at December 31, 2018 and 2017 was as follows (in thousands of U.S. dollars): December 31, 2018 December 31, 2017 (1) Case reserves $ 4,217,068 $ 4,180,554 ACRs 174,713 176,369 IBNR reserves 5,503,595 5,745,249 Non-life reserves $ 9,895,376 $ 10,102,172 (1) In 2018, U.S. health business was reallocated from the Life and Health segment to the P&C segment as part of an internal organizational change. As a result, the impacted 2017 comparatives have been reclassified to conform to current presentation. The reconciliation of the beginning and ending gross and net liability for non-life reserves for the years ended December 31, 2018 , 2017 and 2016 was as follows (in thousands of U.S. dollars): 2018 2017 (1) 2016 (1) Gross liability at beginning of year $ 10,102,172 $ 9,247,200 $ 9,317,003 Reinsurance recoverable at beginning of year 719,998 295,388 228,961 Net liability at beginning of year $ 9,382,174 $ 8,951,812 $ 9,088,042 Net incurred losses related to: Current year $ 3,417,366 $ 3,453,725 $ 3,243,506 Prior years (248,719 ) (448,158 ) (676,574 ) $ 3,168,647 $ 3,005,567 $ 2,566,932 Change in Paris Re Reserve Agreement (2) $ (397,493 ) $ (3,481 ) $ 5,518 Net paid losses related to: Current year $ (336,584 ) $ (472,291 ) $ (391,528 ) Prior years (2,585,403 ) (2,506,760 ) (2,096,945 ) $ (2,921,987 ) $ (2,979,051 ) $ (2,488,473 ) Effects of foreign exchange rate changes $ (186,911 ) $ 407,327 $ (220,207 ) Net liability at end of year $ 9,044,430 $ 9,382,174 $ 8,951,812 Reinsurance recoverable at end of year 850,946 719,998 295,388 Gross liability at end of year $ 9,895,376 $ 10,102,172 $ 9,247,200 (1) In 2018, U.S. health business was reallocated from the Life and Health segment to the P&C segment as part of an internal organizational change. As a result, the impacted 2017 and 2016 comparatives have been reclassified to conform to current presentation. (2) The change in reserve agreement includes (adverse) favorable development on Paris Re’s reserves which were guaranteed by Axa under the reserve agreement. For 2018, this balance also includes the reduction of the guaranteed reserves following the commutation of the agreement in the fourth quarter of 2018. For the year ended December 31, 2018 , the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in both Non-life segments. The favorable loss emergence within the P&C segment was across multiple accident years, mainly driven by the casualty business. The favorable loss emergence within the Specialty segment was across multiple accident years, predominantly from the financial risks and property marine energy business. For the year ended December 31, 2017 , the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in both Non-life segments. The favorable loss emergence within the P&C segment was across multiple accident years, mainly driven by the casualty business. The favorable loss emergence within the Specialty segment was predominantly from the previous two accident years, mainly driven by the energy and agriculture business. For the year ended December 31, 2016 , the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in both Non-life segments. The favorable loss emergence within the P&C segment was across multiple accident years, mainly driven by the casualty business. The favorable loss emergence within the Specialty segment was predominantly from the previous two accident years, mainly driven by the marine and energy business. Paris Re Reserve Agreement Following Paris Re’s acquisition of substantially all of the reinsurance operations of Colisée Re in 2006, Paris Re’s French operating subsidiary (Paris Re France) entered into a reserve agreement (Reserve Agreement) whereby AXA and Colisée Re guarantee reserves in respect of Paris Re France and subsidiaries acquired in the acquisition. The Reserve Agreement related to losses incurred prior to December 31, 2005. The reserve guarantee was conditioned upon, among other things, the guaranteed business, including related ceded reinsurance, being managed by AXA Liabilities Managers, an affiliate of Colisée Re. At December 31, 2017 , the Company’s gross liability for non-life reserves included $426 million of guaranteed reserves, which were settled prior to December 31, 2018 as a result of the commutation of the remaining reserves under the Reserve Agreement. As a result of this commutation, a gain of $ 29 million was recorded in Other income within the Consolidated Statement of Operations during the year ended December 31, 2018. Prior to the commutation, favorable or adverse development related to the guaranteed reserves was recorded as a change in non-life reserves with an offsetting change in the related payable or receivable to/from Colisée Re within the Funds held–directly managed account in the Consolidated Balance Sheets. See also Note 5. Asbestos and Environmental Claims The Company’s net non-life reserves at December 31, 2018 and 2017 included $ 47 million and $134 million , respectively, related to asbestos and environmental claims. The gross liability for such claims at December 31, 2018 and 2017 was $ 54 million and $142 million , respectively. This primarily relates to casualty exposures in the United States arising from business written by the French branch of PartnerRe Europe and PartnerRe U.S. For the year ended December 31, 2017, the reserve included business related to Paris Re’s gross liability for asbestos and environmental claims for accident years 2005 and prior of $96 million , with any favorable or adverse development being subject to the Reserve Agreement, which was commuted in 2018. Ultimate loss estimates for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the Company’s potential losses for these claims. In view of the legal and tort environment that affect the development of such claims, the uncertainties inherent in estimating asbestos and environmental claims are not likely to be resolved in the near future. There can be no assurance that the reserves established by the Company will not be adversely affected by development of other latent exposures, and further, there can be no assurance that the reserves established by the Company will be adequate. The Company does, however, actively evaluate potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific issues that would materially affect its unpaid losses and loss expense reserves related to this exposure. Reserving methods The reserving methods commonly employed by the Company are summarized as follows: Chain Ladder (CL) Development Methods (Reported or Paid) These methods use the underlying assumption that losses reported (paid) for each underwriting year at a particular development stage follow a stable pattern. The CL development method assumes that on average, every underwriting year will display the same percentage of ultimate liabilities reported by the Company’s cedants at 24 months after the inception of the underwriting year. The percentages reported (paid) are established for each development stage after examining historical averages from the loss development data. These are sometimes supplemented by external benchmark information. Ultimate liabilities are estimated by multiplying the actual reported (paid) losses by the reciprocal of the assumed reported (paid) percentage. Reserves are then calculated by subtracting paid claims from the estimated ultimate liabilities. Expected Loss Ratio (ELR) Method This method estimates ultimate losses for an underwriting year by applying an estimated loss ratio to the earned premium for that underwriting year. Although the method is insensitive to actual reported or paid losses, it can often be useful at the early stages of development when very few losses have been reported or paid, and the principal sources of information available to the Company consist of information obtained during pricing and qualitative information supplied by the cedant. However, the lack of sensitivity to reported or paid losses means that the method is usually inappropriate at later stages of development. Bornhuetter-Ferguson (B-F) Methods (Reported or Paid) These methods aim to address the variability at early stages of development and incorporates external information such as pricing. The B-F methods are more sensitive to reported and paid losses than the ELR method, and can be seen as a blend of the ELR and CL development methods. Unreported (unpaid) claims are calculated using an expected reporting (payment) pattern and an externally determined estimate of ultimate liabilities (usually determined by multiplying an a priori loss ratio with estimates of premium volume). The accuracy of the a priori loss ratio is a critical assumption in this method. Usually a priori loss ratios are initially determined on the basis of pricing information, but may also be adjusted to reflect other information that subsequently emerges about underlying loss experience. Benktander (B-K) Methods (Reported or Paid) These methods can be viewed as a blend between the CL Development and the B-F methods described above. The blend is based on predetermined weights at each development stage that depend on the reported (paid) development patterns. Loss Event Specific Method The ultimate losses estimated under this method are derived from estimates of specific events based on reported claims, client and broker discussions, review of potential exposures, market loss estimates, modeled analysis and other event specific criteria. Method Weights In determining the loss reserves, the Company often relies on a blend of the results from two or more methods (e.g., weighted averages). The judgment as to which of the above method(s) is most appropriate for a particular underwriting year and reserving cell could change over time as new information emerges regarding underlying loss activity and other data issues. Furthermore, as each line is typically composed of several reserving cells, it is likely that the reserves for the line will be dependent on several reserving methods. This is because reserves for a line are the result of aggregating the reserves for each constituent reserving cell and that a different method could be selected for each reserving cell. The principal reserving methods used for each of the Specialty segment and P&C segment were ELR, Reported/Paid B-F, Reported/Paid B-K and Reported/Paid CL, with the exception of catastrophe risks within the P&C segment where the principal reserving methods used were ELR based on exposure analysis and Loss event specific methods. (b) Life and Health Reserves The reconciliation of the beginning and ending gross and net liability for life and health reserves for the years ended December 31, 2018 , 2017 and 2016 was as follows (in thousands of U.S. dollars): 2018 2017 (1) 2016 (1) Gross liability at beginning of period $ 2,098,759 $ 1,722,330 $ 1,799,643 Reinsurance recoverable at beginning of period 9,287 2,726 3,046 Net liability at beginning of period $ 2,089,472 $ 1,719,604 $ 1,796,597 Liability acquired related to the acquisition of Aurigen — 67,916 — Net incurred losses 1,024,608 835,415 681,159 Net losses paid (818,916 ) (714,151 ) (618,599 ) Effects of foreign exchange rate changes (108,913 ) 180,688 (139,553 ) Net liability at end of period $ 2,186,251 $ 2,089,472 $ 1,719,604 Reinsurance recoverable at end of period 11,829 9,287 2,726 Gross liability at end of period $ 2,198,080 $ 2,098,759 $ 1,722,330 (1) In 2018, U.S. health business was reallocated from the Life and Health segment to the P&C segment as part of an internal organizational change. As a result, the impacted 2017 and 2016 comparatives have been reclassified to conform to current presentation. The increase in net losses incurred and paid in 2018 compared to 2017 was primarily due to growth in the business and the inclusion of losses and loss expenses from the acquisition of Aurigen for a full year in 2018 compared to three quarters in 2017. The increase in net losses incurred and paid in 2017 compared to 2016 was primarily due to the inclusion of Aurigen in 2017, following the acquisition in April 2017. The Company used interest rate assumptions to estimate its liabilities for policy benefits for life and annuity contracts which ranged from 0% to 7% at December 31, 2018 and 2017 . (c) Losses and Loss Expenses Losses and loss expenses in the Consolidated Statements of Operations for the years ended December 31, 2018 , 2017 and 2016 were comprised as follows (in thousands of U.S. dollars): 2018 2017 (1) 2016 (1) Non-life $ 3,168,647 $ 3,005,567 $ 2,566,932 Life and Health 1,024,608 835,415 681,159 Losses and loss expenses $ 4,193,255 $ 3,840,982 $ 3,248,091 (1) In 2018, U.S. health business was reallocated from the Life and Health segment to the P&C segment as part of an internal organizational change. As a result, the impacted 2017 and 2016 comparatives have been reclassified to conform to current presentation. Non-life net incurred and paid losses and loss expense development The net incurred and paid losses and loss expenses development by accident year for each of the years ended December 31, 2012 through 2018 , and the total of IBNR plus expected development on reported claims included within the net incurred claims amounts, as at each of the years ended December 31, 2012 through 2018 , are presented in the tables below (in thousands of U.S. dollars). The information presented below for incurred and paid claims development for each of the years ended December 31, 2012 through 2017 and the average annual percentage payout of incurred claims by age, net of reinsurance, is presented as supplementary information and is unaudited. NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - NON-LIFE For the year ended December 31, December 31, 2018 Accident year 2012 2013 2014 2015 2016 2017 2018 Total of IBNR plus expected development on reported claims 2012 $ 2,637,210 $ 2,448,549 $ 2,293,018 $ 2,187,326 $ 2,155,244 $ 2,186,867 $ 2,163,492 $ 112,104 2013 2,871,364 2,697,368 2,521,182 2,467,928 2,434,587 2,407,116 162,521 2014 2,829,647 2,612,495 2,501,579 2,469,465 2,481,728 236,684 2015 2,882,763 2,593,207 2,487,617 2,502,972 334,162 2016 2,907,786 2,673,642 2,614,830 462,738 2017 2,971,510 2,934,163 829,431 2018 3,022,655 2,250,412 Total $ 18,126,956 $ 4,388,052 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - NON-LIFE For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2012 $ 283,062 $ 1,052,510 $ 1,436,451 $ 1,603,321 $ 1,706,739 $ 1,797,576 $ 1,847,036 2013 242,288 1,292,908 1,644,109 1,845,155 1,975,252 2,068,311 2014 304,066 1,311,788 1,614,941 1,823,531 1,964,856 2015 302,077 1,217,019 1,615,742 1,836,225 2016 324,682 1,366,673 1,722,052 2017 386,326 1,503,129 2018 259,237 Total $ 11,200,846 Net reserves for Accident Years and exposures included in the triangles $ 6,926,110 All outstanding liabilities before Accident Year 2012, net of reinsurance 1,636,500 Total outstanding liabilities for unpaid claims $ 8,562,610 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - NON-LIFE Years 1 2 3 4 5 6 7 Non-life 12% 39% 15% 8% 5% 4% 2% (1) The table above (and each of the three tables below for property, casualty and specialty) reflects losses incurred and paid losses translated to U.S. dollars at the exchange rate as of the balance sheet date whereas the losses and loss expenses in the Consolidated Statement of Operations reflected losses incurred at the average exchange rate for the period. NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY For the year ended December 31, December 31, 2018 Accident year 2012 2013 2014 2015 2016 2017 2018 Total of IBNR plus expected development on reported claims 2012 $ 660,871 $ 660,159 $ 582,063 $ 565,743 $ 550,347 $ 550,104 $ 538,271 $ 5,530 2013 679,013 576,448 544,485 529,249 524,968 514,596 1,160 2014 515,968 471,603 450,264 447,732 444,283 2,067 2015 590,211 548,168 523,012 515,396 7,738 2016 721,172 678,612 632,146 14,941 2017 1,027,772 1,063,309 92,550 2018 850,603 545,540 Total $ 4,558,604 $ 669,526 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2012 $ 99,815 $ 356,469 $ 449,848 $ 483,969 $ 495,215 $ 504,333 $ 507,376 2013 88,603 337,052 437,800 472,185 490,469 493,538 2014 93,134 323,623 387,815 414,068 423,758 2015 95,282 354,313 442,735 471,242 2016 134,960 455,747 536,791 2017 223,180 728,508 2018 76,618 Total $ 3,237,831 Net reserves for Accident Years and exposures included in the triangles $ 1,320,773 All outstanding liabilities before Accident Year 2012, net of reinsurance 105,071 Total outstanding liabilities for unpaid claims $ 1,425,844 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - PROPERTY Years 1 2 3 4 5 6 7 Property 18% 49% 16% 6% 3% 1% 1% NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY For the year ended December 31, December 31, 2018 Accident year 2012 2013 2014 2015 2016 2017 2018 Total of IBNR plus expected development on reported claims 2012 $ 690,205 $ 676,404 $ 648,784 $ 608,535 $ 591,092 $ 599,405 $ 594,889 $ 79,586 2013 799,716 796,471 747,464 729,478 725,012 721,474 136,016 2014 899,068 874,854 854,935 860,154 876,455 194,954 2015 897,153 838,361 814,108 856,355 262,967 2016 847,086 798,784 819,511 315,251 2017 758,715 727,301 399,584 2018 939,700 800,587 Total $ 5,535,685 $ 2,188,945 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2012 $ 51,528 $ 135,448 $ 205,164 $ 278,087 $ 334,143 $ 392,529 $ 423,467 2013 50,403 158,653 266,362 347,899 418,193 479,692 2014 70,987 207,906 311,431 411,596 499,040 2015 66,675 186,585 299,015 397,022 2016 36,622 165,828 265,586 2017 60,845 178,201 2018 61,932 Total $ 2,304,940 Net reserves for Accident Years and exposures included in the triangles $ 3,230,745 All outstanding liabilities before Accident Year 2012, net of reinsurance 1,436,281 Total outstanding liabilities for unpaid claims $ 4,667,026 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - CASUALTY Years 1 2 3 4 5 6 7 Casualty 7% 15% 13% 12% 10% 9% 5% NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY For the year ended December 31, December 31, 2018 Accident year 2012 2013 2014 2015 2016 2017 2018 Total of IBNR plus expected development on reported claims 2012 $ 1,286,134 $ 1,111,986 $ 1,062,171 $ 1,013,048 $ 1,013,805 $ 1,037,358 $ 1,030,332 $ 26,988 2013 1,392,635 1,324,449 1,229,233 1,209,201 1,184,607 1,171,046 25,345 2014 1,414,611 1,266,038 1,196,380 1,161,579 1,160,990 39,663 2015 1,395,399 1,206,678 1,150,497 1,131,221 63,457 2016 1,339,528 1,196,246 1,163,173 132,546 2017 1,185,023 1,143,553 337,297 2018 1,232,352 904,285 Total $ 8,032,667 $ 1,529,581 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2012 $ 131,719 $ 560,593 $ 781,439 $ 841,265 $ 877,381 $ 900,714 $ 916,193 2013 103,282 797,203 939,947 1,025,071 1,066,590 1,095,081 2014 139,945 780,259 915,695 997,867 1,042,058 2015 140,120 676,121 873,992 967,961 2016 153,100 745,098 919,675 2017 102,301 596,420 2018 120,687 Total $ 5,658,075 Net reserves for Accident Years and exposures included in the triangles $ 2,374,592 All outstanding liabilities before Accident Year 2012, net of reinsurance 95,148 Total outstanding liabilities for unpaid claims $ 2,469,740 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - SPECIALTY Years 1 2 3 4 5 6 7 Specialty 11% 50% 15% 7% 4% 2% 2% The Company is predominantly a reinsurer of primary insurers and does not have access to claim frequency information held by our cedants due to the majority of the Company’s business being written on a proportional basis. As such, the Company considers it impracticable to disclose information on the frequency of claims. The Company has concluded that it is impracticable to provide net incurred and paid losses and loss expenses development data for 10 years and has therefore presented the data for 7 years. As disclosed in the notes to the consolidated financial statements for the year ended December 31, 2016, the Company provided 5 years of data in 2016 and agreed to include an additional year of data for each subsequent year such that by 2021 a full 10 years of data will be disclosed. The reconciliation of the net incurred and paid claims development information above to the Non-life reserves in the Consolidated Balance Sheet at December 31, 2018 was as follows (in thousands of U.S. dollars): December 31, 2018 Total outstanding liability for unpaid claims Property $ 1,425,844 Casualty 4,667,026 Specialty 2,469,740 Total outstanding liabilities for unpaid claims $ 8,562,610 Unallocated loss expenses $ 148,700 U.S. health net reserves (1) 327,810 Other 5,310 Total other liabilities $ 481,820 Net liability at end of year $ 9,044,430 Reinsurance recoverable on paid and unpaid claims Property $ 545,300 Casualty 63,161 Specialty 242,485 Reinsurance recoverable at end of year $ 850,946 Gross liability at end of year $ 9,895,376 (1) U.S. health business is not meaningful to include in the development tables as the estimated average duration of the health reserves is less than one year and substantially all claims are expected to be paid within two years, based on historical payout patterns. |
