| 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. See also note 2 (b) . 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, 2019 and 2018 was as follows (in thousands of U.S. dollars): December 31, 2019 December 31, 2018 Case reserves $ 4,203,052 $ 4,217,068 ACRs 158,220 174,713 IBNR reserves 6,002,111 5,503,595 Non-life reserves $ 10,363,383 $ 9,895,376 The reconciliation of the beginning and ending gross and net liability for non-life reserves for the years ended December 31, 2019 , 2018 and 2017 was as follows (in thousands of U.S. dollars): 2019 2018 2017 Gross liability at beginning of year $ 9,895,376 $ 10,102,172 $ 9,247,200 Reinsurance recoverable at beginning of year 850,946 719,998 295,388 Net liability at beginning of year 9,044,430 9,382,174 8,951,812 Net incurred losses related to: (1) Current year 3,716,988 3,417,366 3,453,725 Prior years (56,848 ) (248,719 ) (448,158 ) 3,660,140 3,168,647 3,005,567 Net paid losses related to: Current year (439,285 ) (336,584 ) (472,291 ) Prior years (2,651,385 ) (2,585,403 ) (2,506,760 ) (3,090,670 ) (2,921,987 ) (2,979,051 ) Retroactive reinsurance recoverable (2) (81,013 ) — — Change in Paris Re reserve agreement (3) — (397,493 ) (3,481 ) Effects of foreign exchange rate changes 75,701 (186,911 ) 407,327 Net liability at end of year $ 9,608,588 $ 9,044,430 $ 9,382,174 Reinsurance recoverable at end of year 754,795 850,946 719,998 Gross liability at end of year $ 10,363,383 $ 9,895,376 $ 10,102,172 (1) Net incurred losses include favorable loss development of $3 million during the year ended December 31, 2019, which are allocated to Corporate and Other as disclosed in Note 18. Non-life reserves allocated to Corporate and Other totaled $6 million , $9 million and $ nil at December 31, 2019, 2018 and 2017, respectively. (2) In the fourth quarter of 2019, the Company entered into a loss portfolio transfer agreement transferring 100 % of liabilities, including profit commissions, related to its wholesale managing general agent portfolio. As a result of the transaction, the Company recorded a deferred gain of $14 million , which is included in Accounts payable, accrued expenses and other in the Consolidated Balance Sheet. (3) The change in reserve agreement includes adverse development on Paris Re’s reserves which were guaranteed by Axa under the reserve agreement. In 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, 2019 , the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in the P&C segment, which was partially offset by adverse loss emergence for the Specialty segment. The favorable loss emergence within the P&C segment was primarily from accident years 2014 and prior, mainly driven by the European casualty and motor business, which was partially offset by adverse loss emergence in the U.S. casualty business. The adverse loss emergence within the Specialty segment was across multiple accident years, predominantly from the engineering, aviation and multiline business. 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 European 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. 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 guaranteed 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. As of December 31, 2019 no balances related to the Paris Re agreement remain. Asbestos and Environmental Claims The Company’s net non-life reserves at December 31, 2019 and 2018 included $ 45 million and $47 million , respectively, related to asbestos and environmental claims. The gross liability for such claims at December 31, 2019 and 2018 was $ 51 million and $54 million , respectively. 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. Non-life 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. 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, 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, 2019 , 2018 and 2017 was as follows (in thousands of U.S. dollars): 2019 2018 2017 Gross liability at beginning of period $ 2,198,080 $ 2,098,759 $ 1,722,330 Reinsurance recoverable at beginning of period 11,829 9,287 2,726 Net liability at beginning of period $ 2,186,251 $ 2,089,472 $ 1,719,604 Liability acquired related to the acquisition of Aurigen — — 67,916 Net incurred losses 1,263,016 1,024,608 835,415 Net losses paid (1,071,487 ) (818,916 ) (714,151 ) Effects of foreign exchange rate changes 23,081 (108,913 ) 180,688 Net liability at end of period $ 2,400,861 $ 2,186,251 $ 2,089,472 Reinsurance recoverable at end of period 16,183 11,829 9,287 Gross liability at end of period $ 2,417,044 $ 2,198,080 $ 2,098,759 The increase in net losses incurred and paid in 2019 compared to 2018 was primarily due to growth in the longevity line of business. 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 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, 2019 , 2018 and 2017 , respectively. Life and health reserving methods The reserving methods commonly employed by the Company are summarized as follows: Mortality The reserves for the short-term mortality/morbidity business consist of case reserves calculated at the treaty level based upon cedant information. IBNR is calculated at the segment level using the ELR method described above for Non-life business. The reserves for the traditional and limited payment long-duration contracts are established based upon accepted actuarial valuation methods which require us to make certain assumptions regarding future claims and policy benefits and includes a provision for adverse deviation. The provision for adverse deviation contemplates reasonable deviations from the best estimate assumptions for the key risk elements relevant to the product being evaluated, including mortality, disability, critical illness, expenses, and discount rates. The assumptions are locked in at contract inception and are subject to annual loss recognition testing (LRT). LRT occurs at the product group level, based on the manner of acquiring, servicing and measuring profitability of the reinsurance contracts. The LRT framework incorporates deferred acquisition cost (DAC) recoverability testing and involves determining an LRT reserve by re-measuring the policy benefit liabilities using current best estimate actuarial assumptions and current discount rates without any provisions for adverse deviation. If the aggregate LRT reserve is higher than the carrying amount of future policy benefit liabilities, net of DAC and VOBA, for a particular product grouping then a loss recognition event occurs. The DAC and VOBA asset balances for the given product grouping are first reduced, and if the balances are fully written off, the reserves will be increased, such that the current best estimate assumptions become the new locked-in basis. The reserves for the guaranteed minimum death benefit (GMDB) reinsurance business are established similar to provisions for universal life contracts. Key actuarial assumptions for this business are mortality, lapses, interest rates, expected returns on cash and bonds and stock market performance. For the latter parameter, a stochastic option pricing approach is used and the benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The assumptions of investment performance and volatility are consistent with expected future experience of the respective underlying funds available for policyholder investment options. Recorded reserves for GMDB reflect management’s best estimate based upon actuarial indications. Longevity Reserves for the annuity portfolio of reinsurance contracts within the longevity book are established using the reserving methodology discussed above for long-term traditional mortality. (c) Losses and Loss Expenses Losses and loss expenses in the Consolidated Statements of Operations for the years ended December 31, 2019 , 2018 and 2017 were comprised as follows (in thousands of U.S. dollars): 2019 2018 2017 Non-life (1) $ 3,660,140 $ 3,168,647 $ 3,005,567 Life and Health 1,263,016 1,024,608 835,415 Losses and loss expenses $ 4,923,156 $ 4,193,255 $ 3,840,982 (1) Net incurred losses include favorable loss development of $3 million during the year ended December 31, 2019, which are allocated to Corporate and Other as disclosed in Note 18. 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 2019 , 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 2019 , 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 2018 and the average annual percentage payout of incurred claims by age, net of reinsurance, is presented as supplementary information and is unaudited. The tables below reflect 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 reflect losses incurred at the average exchange rate for the period. NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - NON-LIFE For the year ended December 31, December 31, 2019 Accident year 2012 2013 2014 2015 2016 2017 2018 2019 Total of IBNR plus expected development on reported claims 2012 $ 2,647,806 $ 2,459,009 $ 2,303,222 $ 2,196,596 $ 2,164,135 $ 2,195,163 $ 2,172,148 $ 2,139,972 $ 79,953 2013 2,880,337 2,706,850 2,528,689 2,475,252 2,441,912 2,414,380 2,411,641 124,904 2014 2,839,909 2,623,230 2,511,859 2,479,721 2,492,027 2,484,866 172,037 2015 2,894,162 2,603,297 2,497,256 2,512,588 2,514,275 245,645 2016 2,920,285 2,687,055 2,627,830 2,642,625 305,985 2017 2,979,457 2,944,385 2,900,190 519,547 2018 3,032,976 3,157,151 1,111,071 2019 3,380,372 2,599,954 Total $ 21,631,092 $ 5,159,096 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 2019 2012 $ 284,166 $ 1,056,888 $ 1,442,587 $ 1,610,064 $ 1,713,934 $ 1,805,174 $ 1,854,934 $ 1,910,828 2013 243,466 1,296,424 1,648,668 1,849,929 1,980,425 2,073,929 2,139,380 2014 305,500 1,316,469 1,621,164 1,830,516 1,972,511 2,079,766 2015 303,258 1,220,915 1,620,950 1,842,331 2,009,107 2016 325,991 1,371,581 1,729,815 1,999,489 2017 386,724 1,505,014 1,947,279 2018 258,686 1,402,377 2019 373,408 Total $ 13,861,634 Net reserves for Accident Years and exposures included in the triangles $ 7,769,458 All outstanding liabilities before Accident Year 2012, net of reinsurance 1,390,371 Total outstanding liabilities for unpaid claims $ 9,159,829 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - NON-LIFE Years 1 2 3 4 5 6 7 8 Non-life 11% 39% 15% 9% 6% 4% 3% 3% NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY For the year ended December 31, December 31, 2019 Accident year 2012 2013 2014 2015 2016 2017 2018 2019 Total of IBNR plus expected development on reported claims 2012 $ 662,441 $ 661,245 $ 583,098 $ 566,540 $ 551,100 $ 550,829 $ 538,974 $ 528,350 $ 1,763 2013 680,224 577,101 544,546 529,252 524,956 514,569 512,280 637 2014 516,850 472,237 450,682 448,212 444,769 443,084 1,273 2015 590,183 547,728 522,565 515,050 509,581 4,681 2016 725,033 682,433 635,793 615,922 689 2017 1,028,702 1,066,528 982,534 9,914 2018 853,796 895,740 143,479 2019 769,345 508,751 Total $ 5,256,836 $ 671,187 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2019 2012 $ 100,087 $ 357,186 $ 450,730 $ 484,755 $ 496,024 $ 505,112 $ 508,155 $ 515,287 2013 88,592 337,128 437,950 472,219 490,491 493,544 497,536 2014 93,141 324,074 388,404 414,611 424,255 429,061 2015 95,097 354,291 442,619 471,072 481,885 2016 135,797 458,282 540,023 577,319 2017 223,070 729,584 838,023 2018 76,543 552,879 2019 69,397 Total $ 3,961,387 Net reserves for Accident Years and exposures included in the triangles $ 1,295,449 All outstanding liabilities before Accident Year 2012, net of reinsurance 98,817 Total outstanding liabilities for unpaid claims $ 1,394,266 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - PROPERTY Years 1 2 3 4 5 6 7 8 Property 17% 51% 15% 6% 3% 1% 1% 1% NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY For the year ended December 31, December 31, 2019 Accident year 2012 2013 2014 2015 2016 2017 2018 2019 Total of IBNR plus expected development on reported claims 2012 $ 691,612 $ 677,836 $ 650,181 $ 609,784 $ 592,346 $ 600,562 $ 596,124 $ 581,746 $ 57,791 2013 802,811 799,292 750,054 732,098 727,631 724,046 721,739 103,987 2014 904,048 879,775 859,778 865,219 881,493 874,893 143,527 2015 901,313 842,230 818,099 860,334 863,757 198,744 2016 850,575 802,362 823,050 851,402 243,580 2017 761,332 730,116 758,644 310,148 2018 942,480 958,819 556,588 2019 1,206,641 1,034,865 Total $ 6,817,641 $ 2,649,230 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2019 2012 $ 51,617 $ 135,521 $ 205,350 $ 278,348 $ 334,492 $ 392,972 $ 424,029 $ 451,205 2013 50,730 159,533 267,552 349,230 419,638 481,271 521,963 2014 72,033 210,083 314,019 414,479 502,072 573,236 2015 67,148 187,592 300,608 398,833 501,185 2016 36,648 166,265 266,382 382,219 2017 61,252 179,150 290,131 2018 62,265 235,579 2019 88,066 Total $ 3,043,584 Net reserves for Accident Years and exposures included in the triangles $ 3,774,057 All outstanding liabilities before Accident Year 2012, net of reinsurance 1,235,855 Total outstanding liabilities for unpaid claims $ 5,009,912 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - CASUALTY Years 1 2 3 4 5 6 7 8 Casualty 7% 16% 13% 12% 10% 9% 6% 5% NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY For the year ended December 31, December 31, 2019 Accident year 2012 2013 2014 2015 2016 2017 2018 2019 Total of IBNR plus expected development on reported claims 2012 $ 1,293,753 $ 1,119,928 $ 1,069,943 $ 1,020,272 $ 1,020,689 $ 1,043,772 $ 1,037,050 $ 1,029,876 $ 20,399 2013 1,397,302 1,330,457 1,234,089 1,213,902 1,189,325 1,175,765 1,177,622 20,280 2014 1,419,011 1,271,218 1,201,399 1,166,290 1,165,765 1,166,889 27,237 2015 1,402,666 1,213,339 1,156,592 1,137,204 1,140,937 42,220 2016 1,344,677 1,202,260 1,168,987 1,175,301 61,716 2017 1,189,423 1,147,741 1,159,012 199,485 2018 1,236,700 1,302,592 411,004 2019 1,404,386 1,056,338 Total $ 9,556,615 $ 1,838,679 NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY For the year ended December 31, Accident year 2012 2013 2014 2015 2016 2017 2018 2019 2012 $ 132,462 $ 564,181 $ 786,507 $ 846,961 $ 883,418 $ 907,090 $ 922,750 $ 944,336 2013 104,144 799,763 943,166 1,028,480 1,070,296 1,099,114 1,119,881 2014 140,326 782,312 918,741 1,001,426 1,046,184 1,077,469 2015 141,013 679,032 877,723 972,426 1,026,037 2016 153,546 747,034 923,410 1,039,951 2017 102,402 596,280 819,125 2018 119,878 613,919 2019 215,945 Total $ 6,856,663 Net reserves for Accident Years and exposures included in the triangles $ 2,699,952 All outstanding liabilities before Accident Year 2012, net of reinsurance 55,699 Total outstanding liabilities for unpaid claims $ 2,755,651 AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - SPECIALTY Years 1 2 3 4 5 6 7 8 Specialty 12% 48% 16% 8% 4% 2% 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. As disclosed in the notes to the consolidated financial statements for the year ended December 31, 2016, the Company concluded that it was impracticable to provide net incurred and paid losses and loss expenses development data for 10 years. As a result, the Company provided 5 years of data in 2016 and includes 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, 2019 was as follows (in thousands of U.S. dollars): December 31, 2019 Total outstanding liability for unpaid claims Property $ 1,394,266 Casualty 5,009,912 Specialty 2,755,651 Total outstanding liabilities for unpaid claims $ 9,159,829 Unallocated loss expenses $ 164,021 U.S. health net reserves (1) 281,022 Other 3,716 Total other liabilities $ 448,759 Net liability at end of year $ 9,608,588 Reinsurance recoverable on paid and unpaid claims Property $ 340,926 Casualty 86,940 Specialty 326,929 Reinsurance recoverable at end of year $ 754,795 Gross liability at end of year $ 10,363,383 (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. |
