| Short duration contracts | The Company’s reserves for losses and loss adjustment expenses primarily relate to short-duration contracts with various characteristics ( e.g. , type of coverage, geography, claims duration). The Company considered such information in determining the level of disaggregation for disclosures related to its short-duration contracts, as detailed in the table below: Reportable segment Level of disaggregation Included lines of business Insurance Property energy, marine and aviation Property energy, marine and aviation Third party occurrence business Excess and surplus casualty (excluding contract binding); construction and national accounts; and other (including alternative market risks, excess workers’ compensation and employer’s liability insurance coverages) Third party claims-made business Professional lines Multi-line and other specialty Programs; contract binding (part of excess and surplus casualty); travel, accident and health; lenders products; and other (c ontract and commercial surety coverages) Reinsurance Casualty Casualty Property catastrophe Property catastrophe Property excluding property catastrophe Property excluding property catastrophe Marine and aviation Marine and aviation Other specialty Other specialty Mortgage Direct mortgage insurance in the U.S. Mortgage insurance on U.S. primary exposures The Company determined the following to be insignificant for disclosure purposes: (i) amounts included in the ‘other’ segment ( i.e. , Watford ) as described in note 12, “Variable Interest Entity and Noncontrolling Interests” ; (ii) certain mortgage business, including non-U.S. primary business, second lien and student loan exposures, global mortgage reinsurance and participation in various GSE credit risk-sharing products, (iii) certain reinsurance business, including casualty clash and non-traditional lines and (iv) amounts associated with Barbican’s reserves for underwriting years 2018 and prior. Such amounts are included as reconciling items. The Company is required to establish reserves for losses and loss adjustment expenses (“Loss Reserves”) that arise from the business the Company underwrites. Loss Reserves for the insurance, reinsurance and mortgage segments represent estimates of future amounts required to pay losses and loss adjustment expenses for insured or reinsured events which have occurred at or before the balance sheet date. Loss Reserves do not reflect contingency reserve allowances to account for future loss occurrences. Losses arising from future events will be estimated and recognized at the time the losses are incurred and could be substantial. Insurance Segment Loss Reserves for the insurance segment are comprised of estimated amounts for (1) reported losses (“case reserves”) and (2) incurred but not reported losses (“IBNR reserves”). Generally, claims personnel determine whether to establish a case reserve for the estimated amount of the ultimate settlement of individual claims. The estimate reflects the judgment of claims personnel based on general corporate reserving practices, the experience and knowledge of such personnel regarding the nature and value of the specific type of claim and, where appropriate, advice of counsel. The Company also contracts with a number of outside third party administrators in the claims process who, in certain cases, have limited authority to establish case reserves. The work of such administrators is reviewed and monitored by our claims personnel. Loss Reserves are also established to provide for loss adjustment expenses and represent the estimated expense of settling claims, including legal and other fees and the general expenses of administering the claims adjustment process. Periodically, adjustments to the case reserves may be made as additional information is reported or payments are made. IBNR reserves are established to provide for incurred claims which have not yet been reported at the balance sheet date as well as to adjust for any projected variance in case reserving. Actuaries estimate ultimate losses and loss adjustment expenses using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made. The process of estimating reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. Ultimate losses and loss adjustment expenses are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to persist into the future. In forecasting ultimate losses and loss adjustment expenses with respect to any line of business, past experience with respect to that line of business is the primary resource, developed through both industry and company experience, but cannot be relied upon in isolation. Uncertainties in estimating ultimate losses and loss adjustment expenses are magnified by the length of the time lag between when a claim actually occurs and when it is reported and settled. This time lag is sometimes referred to as the “claim-tail.” During this period additional facts regarding coverages written in prior accident years, as well as about actual claims and trends, may become known and, as a result, may lead to adjustments of the related Loss Reserves. If the Company determines that an adjustment is appropriate, the adjustment is recorded in the accounting period in which such determination is made. Accordingly, should Loss Reserves need to be increased or decreased in the future from amounts currently established, future results of operations would be negatively or positively impacted respectively. The Company authorizes managing general agents, general agents and other producers to write program business on the Company’s behalf within prescribed underwriting authorities. This delegated authority process introduces additional complexity to the actuarial determination of unpaid future losses and loss adjustment expenses. In order to monitor adherence to the underwriting guidelines given to such parties, the Company periodically performs underwriting and claims due diligence reviews. In determining ultimate losses and loss adjustment expenses, the cost to indemnify claimants, provide needed legal defense and other services for insureds and administer the investigation and adjustment of claims are considered. These claim costs are influenced by many factors that change over time, such as expanded coverage definitions as a result of new court decisions, inflation in costs to repair or replace damaged property, inflation in the cost of medical services and legislated changes in statutory benefits, as well as by the particular, unique facts that pertain to each claim. As a result, the rate at which claims arose in the past and the costs to settle them may not always be representative of what will occur in the future. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple and conflicting interpretations. Changes in coverage terms or claims handling practices may also cause future experience and/or development patterns to vary from the past. A key objective of actuaries in developing estimates of ultimate losses and loss adjustment expenses, and resulting IBNR reserves, is to identify aberrations and systemic changes occurring within historical experience and adjust for them so that the future can be projected more reliably. Because of the factors previously discussed, this process requires the substantial use of informed judgment and is inherently uncertain. Although Loss Reserves are initially determined based on underwriting and pricing analyses, the Company’s insurance segment applies several generally accepted actuarial methods, as discussed below, on a quarterly basis to evaluate the Loss Reserves, in addition to the expected loss method, in particular for Loss Reserves from more mature accident years (the year in which a loss occurred). Each quarter, as part of the reserving process, the segments’ actuaries reaffirm that the assumptions used in the reserving process continue to form a sound basis for the projection of liabilities. If actual loss activity differs substantially from expectations based on historical information, an adjustment to Loss Reserves may be supported. The Company places more or less reliance on a particular actuarial method based on the facts and circumstances at the time the estimates of Loss Reserves are made. These methods generally fall into one of the following categories or are hybrids of one or more of the following categories: • Expected loss methods - these methods are based on the assumption that ultimate losses vary proportionately with premiums. Expected loss and loss adjustment expense ratios are typically developed based upon the information derived by underwriters and actuaries during the initial pricing of the business, supplemented by industry data available from organizations, such as statistical bureaus and consulting firms, where appropriate. These ratios consider, among other things, rate increases and changes in terms and conditions that have been observed in the market. Expected loss methods are useful for estimating ultimate losses and loss adjustment expenses in the early years of long-tailed lines of business, when little or no paid or incurred loss information is available, and is commonly applied when limited loss experience exists for a company. • Historical incurred loss development methods - these methods assume that the ratio of losses in one period to losses in an earlier period will remain constant in the future. These methods use incurred losses ( i.e. , the sum of cumulative historical loss payments plus outstanding case reserves) over discrete periods of time to estimate future losses. Historical incurred loss development methods may be preferable to historical paid loss development methods because they explicitly take into account open cases and the claims adjusters’ evaluations of the cost to settle all known claims. However, historical incurred loss development methods necessarily assume that case reserving practices are consistently applied over time. Therefore, when there have been significant changes in how case reserves are established, using incurred loss data to project ultimate losses may be less reliable than other methods. • Historical paid loss development methods - these methods, like historical incurred loss development methods, assume that the ratio of losses in one period to losses in an earlier period will remain constant. These methods use historical loss payments over discrete periods of time to estimate future losses and necessarily assume that factors that have affected paid losses in the past, such as inflation or the effects of litigation, will remain constant in the future. Because historical paid loss development methods do not use incurred losses to estimate ultimate losses, they may be more reliable than the other methods that use incurred losses in situations where there are significant changes in how incurred losses are established by a company’s claims adjusters. However, historical paid loss development methods are more leveraged (meaning that small changes in payments have a larger impact on estimates of ultimate losses) than actuarial methods that use incurred losses because cumulative loss payments take much longer to equal the expected ultimate losses than cumulative incurred amounts. In addition, and for similar reasons, historical paid loss development methods are often slow to react to situations when new or different factors arise than those that have affected paid losses in the past. • Adjusted historical paid and incurred loss development methods - these methods take traditional historical paid and incurred loss development methods and adjust them for the estimated impact of changes from the past in factors such as inflation, the speed of claim payments or the adequacy of case reserves. Adjusted historical paid and incurred loss development methods are often more reliable methods of predicting ultimate losses in periods of significant change, provided the actuaries can develop methods to reasonably quantify the impact of changes. As such, these methods utilize more judgment than historical paid and incurred loss development methods. • Bornhuetter-Ferguson (“B-F”) paid and incurred loss methods - these methods utilize actual paid and incurred losses and expected patterns of paid and incurred losses, taking the initial expected ultimate losses into account to determine an estimate of expected ultimate losses. The B-F paid and incurred loss methods are useful when there are few reported claims and a relatively less stable pattern of reported losses. • Frequency-Severity methods - These methods utilize actual paid and incurred claim experience, but break the data down into its component pieces: claim counts, often expressed as a ratio to exposure or premium (frequency), and average claim size (severity). The component pieces are projected to an ultimate level and multiplied together to result in an estimate of ultimate loss. These methods are especially useful when the severity of claims can be confined to a relatively stable range of estimated ultimate average claim value. • Additional analyses - other methodologies are often used in the reserving process for specific types of claims or events, such as catastrophic or other specific major events. These include vendor catastrophe models, which are typically used in the estimation of Loss Reserves at the early stage of known catastrophic events before information has been reported to an insurer or reinsurer. In the initial reserving process for short-tail insurance lines (consisting of property, energy, marine and aviation and other exposures including travel, accident and health and lenders products), the Company relies on a combination of the reserving methods discussed above. For catastrophe-exposed business, the reserving process also includes the usage of catastrophe models for known events and a heavy reliance on analysis of individual catastrophic events and management judgment. The development of losses on short-tail business can be unstable, especially for policies characterized by high severity, low frequency losses. As time passes, for a given accident year, additional weight is given to the paid and incurred B-F loss development methods and eventually to the historical paid and incurred loss development methods in the reserving process. The Company makes a number of key assumptions in their reserving process, including that historical paid and reported development patterns are stable, catastrophe models provide useful information about our exposure to catastrophic events that have occurred and underwriters’ judgment as to potential loss exposures can be relied on. The expected loss ratios used in the initial reserving process for short-tail business have varied over time due to changes in pricing, reinsurance structure, estimates of catastrophe losses, policy changes (such as attachment points, class and limits) and geographical distribution. As losses in short-tail lines are reported relatively quickly, expected loss ratios are selected for the current accident year based upon actual attritional loss ratios for earlier accident years, adjusted for rate changes, inflation, changes in reinsurance programs and expected attritional losses based on modeling. Furthermore, ultimate losses for short-tail business are known in a reasonably short period of time. In the initial reserving process for medium-tail and long-tail insurance lines ( consisting of third party occurrence business, third party claims made business, and other exposures including surety, programs and contract binding exposures), the Company primarily relies on the expected loss method. The development of the Company’s medium-tail and long-tail business may be unstable, especially if there are high severity major events, as a portion of the Company’s casualty business is in high excess layers. As time passes, for a given accident year, additional weight is given to the paid and incurred B-F loss development methods and historical paid and incurred loss development methods in the reserving process. The Company makes a number of key assumptions in reserving for medium-tail and long-tail lines, including that the pricing loss ratio is the best estimate of the ultimate loss ratio at the time the policy is entered into, that the loss development patterns, which are based on a combination of company and industry loss development patterns and adjusted to reflect differences in the insurance segment’s mix of business, are reasonable and that claims personnel and underwriters analyses of our exposure to major events are assumed to be the best estimate of exposure to the known claims on those events. The expected loss ratios used in the initial reserving process for medium-tail and long-tail business for recent accident years have varied over time, in some cases significantly, from earlier accident years. As the credibility of historical experience for earlier accident years increases, the experience from these accident years will be given a greater weighting in the actuarial analysis to determine future accident year expected loss ratios, adjusted for changes in pricing, loss trends, terms and conditions and reinsurance structure. In 2018, the Company entered into a loss portfolio transfer and adverse development cover reinsurance agreement accounted for as retroactive reinsurance. The agreement transfers Loss Reserves and future favorable or adverse development on certain runoff programs, within multi-line and other specialty business, and certain third party occurrence business (the “Covered Lines”). As incurred losses and allocated loss adjustment expenses for the Covered Lines are ceded to the reinsurer, the Company is not exposed to changes in the amount, timing and uncertainty of cash flows arising from the Covered Lines. To avoid distortion, the incurred losses and allocated loss adjustment expenses and cumulative paid losses and loss adjustment expenses for the Covered Lines are excluded entirely from the tables below. Reinsurance recoverables at December 31, 2020 included $153.1 million related to this reinsurance agreement. The following tables present information on the insurance segment’s short-duration insurance contracts: Property, energy, marine and aviation ($000’s except claim count) Incurred losses and allocated loss adjustment expenses, net of reinsurance December 31, 2020 Total of IBNR liabilities plus expected development on reported claims Cumulative Year ended December 31, Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 269,739 $ 272,897 $ 231,841 $ 220,231 $ 210,926 $ 207,814 $ 200,918 $ 201,198 $ 197,833 $ 196,436 $ 689 4,219 2012 232,500 231,742 205,098 198,837 196,405 192,406 190,192 178,039 177,673 931 4,269 2013 158,718 156,344 148,800 143,046 134,620 133,544 128,301 126,968 809 4,278 2014 148,185 145,765 147,315 136,096 132,209 134,234 134,937 4,206 3,930 2015 112,333 109,799 103,944 102,469 97,809 91,788 5,249 4,618 2016 104,139 100,986 105,330 100,147 96,127 882 6,389 2017 280,695 246,272 235,932 230,421 9,327 6,752 2018 180,981 186,030 173,693 14,784 5,347 2019 179,056 178,564 20,553 6,051 2020 359,394 168,463 16,980 Total $ 1,766,001 Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance 2011 $ 34,478 $ 99,724 $ 142,231 $ 167,867 $ 200,473 $ 202,347 $ 197,720 $ 198,626 $ 195,245 $ 195,347 2012 20,522 92,855 138,431 161,255 166,965 179,371 180,734 172,611 173,460 2013 32,239 84,759 110,548 119,791 121,922 125,156 123,036 124,369 2014 25,859 53,669 77,804 84,103 87,721 98,463 115,293 2015 23,567 64,916 76,299 86,214 87,887 86,207 2016 24,728 83,321 98,420 97,218 94,703 2017 30,219 139,854 195,518 211,694 2018 30,026 102,285 134,858 2019 26,130 105,380 2020 55,619 Total 1,296,930 All outstanding liabilities before 2011, net of reinsurance 23,517 Liabilities for losses and loss adjustment expenses, net of reinsurance $ 492,588 Third party occurrence business ($000’s except claim count) Incurred losses and allocated loss adjustment expenses, net of reinsurance December 31, 2020 Total of IBNR liabilities plus expected development on reported claims Cumulative Year ended December 31, Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 234,068 $ 240,669 $ 254,181 $ 258,784 $ 252,615 $ 253,976 $ 247,052 $ 239,676 $ 234,782 $ 235,073 $ 35,138 70,924 2012 241,062 262,718 268,365 271,035 257,418 252,822 242,930 243,484 241,378 50,208 65,495 2013 282,968 296,839 306,751 301,789 281,786 274,391 272,528 269,437 60,720 66,685 2014 329,809 335,720 338,623 342,868 339,495 343,995 342,731 77,547 74,964 2015 358,858 391,666 398,670 391,904 391,231 382,518 107,083 77,257 2016 389,623 394,281 405,889 399,394 374,728 142,000 76,765 2017 417,183 417,748 422,441 412,318 195,684 82,267 2018 430,216 452,975 450,736 248,271 74,789 2019 456,059 487,224 318,622 80,934 2020 606,827 524,473 67,541 Total $ 3,802,970 Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance 2011 $ 7,020 $ 25,276 $ 43,479 $ 73,448 $ 113,502 $ 134,622 $ 152,756 $ 160,609 $ 172,940 $ 181,505 2012 6,966 30,824 58,444 83,328 108,252 129,572 143,177 154,282 162,202 2013 6,845 29,230 71,370 101,196 122,120 149,098 164,187 174,700 2014 9,209 40,263 71,519 112,591 161,993 191,168 211,503 2015 11,119 44,542 88,443 139,403 181,566 211,573 2016 11,689 41,938 87,565 136,793 164,573 2017 13,396 52,323 99,827 135,025 2018 17,002 63,798 115,076 2019 18,392 73,120 2020 24,439 Total 1,453,716 All outstanding liabilities before 2011, net of reinsurance 209,031 Liabilities for losses and loss adjustment expenses, net of reinsurance $ 2,558,285 Third party claims-made business ($000’s except claim count) Incurred losses and allocated loss adjustment expenses, net of reinsurance December 31, 2020 Total of IBNR liabilities plus expected development on reported claims Cumulative Year ended December 31, Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 287,607 $ 330,898 $ 322,274 $ 317,074 $ 322,934 $ 301,240 $ 288,038 $ 289,974 $ 291,477 $ 290,124 $ 4,594 11,762 2012 317,360 319,961 318,161 313,622 291,010 275,388 277,388 284,875 285,236 13,772 14,760 2013 301,715 320,387 324,167 320,284 294,465 290,961 281,751 271,262 15,306 14,543 2014 264,354 279,544 298,715 278,706 281,513 297,485 291,729 29,279 13,935 2015 258,817 277,437 276,328 259,902 255,276 252,329 29,255 13,817 2016 275,119 291,377 308,195 314,515 321,850 61,156 15,734 2017 270,523 285,993 311,980 308,401 82,537 15,923 2018 272,844 314,412 319,956 123,386 14,988 2019 289,463 317,668 186,452 18,871 2020 383,914 327,587 21,538 Total $ 3,042,469 Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance 2011 $ 13,740 $ 72,365 $ 130,424 $ 175,139 $ 208,665 $ 228,450 $ 240,267 $ 254,300 $ 269,579 $ 276,887 2012 17,709 69,020 121,112 164,605 190,200 209,097 227,179 251,078 255,098 2013 19,015 87,408 137,890 179,302 197,907 217,030 238,798 245,504 2014 13,815 63,296 129,502 172,835 207,640 229,512 243,338 2015 9,061 52,019 100,048 126,452 174,108 193,130 2016 10,547 68,178 127,229 158,159 205,514 2017 9,289 67,572 113,047 143,149 2018 12,255 68,300 118,184 2019 12,387 65,345 2020 17,098 Total 1,763,247 All outstanding liabilities before 2011, net of reinsurance 97,957 Liabilities for losses and loss adjustment expenses, net of reinsurance $ 1,377,179 Multi-line and other specialty ($000’s except claim count) (1) Incurred losses and allocated loss adjustment expenses, net of reinsurance December 31, 2020 Total of IBNR liabilities plus expected development on reported claims Cumulative Year ended December 31, Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 183,081 $ 188,766 $ 182,979 $ 176,545 $ 172,649 $ 172,403 $ 168,888 $ 170,350 $ 170,091 $ 166,577 $ 1,790 44,989 2012 253,525 264,217 258,467 256,106 255,277 247,050 247,279 244,191 244,246 2,551 55,512 2013 274,361 283,112 274,483 281,697 271,687 275,386 273,177 270,853 4,661 72,323 2014 349,754 373,978 370,442 387,082 398,240 410,366 418,512 12,232 111,727 2015 398,755 418,761 420,642 443,258 456,329 471,865 18,596 151,598 2016 482,653 504,586 514,650 516,239 537,591 28,282 177,931 2017 551,688 579,217 578,341 615,833 45,947 221,643 2018 570,069 621,534 629,299 74,894 247,622 2019 613,638 667,415 134,996 234,383 2020 654,302 403,044 117,814 Total $ 4,676,493 Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance 2011 $ 51,312 $ 103,372 $ 117,927 $ 136,686 $ 148,049 $ 151,710 $ 157,199 $ 159,526 $ 162,460 $ 162,995 2012 78,337 165,836 190,064 209,124 222,929 231,776 232,987 236,282 239,244 2013 86,791 152,773 185,611 222,086 237,898 251,698 257,744 260,374 2014 109,236 206,444 255,332 306,411 341,580 367,026 380,041 2015 142,009 250,360 304,197 350,781 380,818 409,455 2016 181,415 323,681 382,805 425,642 464,774 2017 187,606 363,275 419,454 480,336 2018 214,475 399,852 464,970 2019 213,950 397,104 2020 174,862 Total 3,434,155 All outstanding liabilities before 2011, net of reinsurance 31,453 Liabilities for losses and loss adjustment expenses, net of reinsurance $ 1,273,791 (1) In 2019, the Company entered into a loss portfolio transfer agreement, which transferred reserves associated with certain multi-line business for accident years 2017 and prior to a third party. This loss portfolio transfer agreement was commuted in 2020, therefore the complete history of the subject business is now included in the multi-line triangles above. The following table presents the average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance, as of December 31, 2020: Average annual percentage payout of incurred losses and allocated loss adjustment expenses by age, net of reinsurance Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Property, energy, marine and aviation 18.6 % 41.7 % 19.6 % 7.8 % 3.9 % 3.3 % 2.3 % (1.0) % (0.6) % 0.1 % Third party occurrence business 3.2 % 9.2 % 11.3 % 11.6 % 11.3 % 8.8 % 6.2 % 3.9 % 4.3 % 3.6 % Third party claims-made business 4.5 % 18.7 % 18.4 % 12.9 % 12.2 % 7.1 % 5.8 % 5.2 % 3.3 % 2.5 % Multi-line and other specialty 30.8 % 27.7 % 10.5 % 10.4 % 6.7 % 4.6 % 2.3 % 1.2 % 1.5 % 0.3 % Reinsurance Segment Loss Reserves for the Company’s reinsurance segment are comprised of (1) case reserves, (2) additional case reserves (“ACRs”) and (3) IBNR reserves. The Company receives reports of claims notices from ceding companies and records case reserves based upon the amount of reserves recommended by the ceding company. Case reserves may be supplemented by ACRs, which may be estimated by the Company’s claims personnel ahead of official notification from the ceding company, or when judgment regarding the size or severity of the known event differs from the ceding company. In certain instances, the Company establishes ACRs even when the ceding company does not report any liability on a known event. In addition, specific claim information reported by ceding companies or obtained through claim audits can alert the Company to emerging trends such as changing legal interpretations of coverage and liability, claims from unexpected sources or classes of business, and significant changes in the frequency or severity of individual claims. Such information is often used in the process of estimating IBNR reserves. IBNR reserves are established to provide for incurred claims which have not yet been reported at the balance sheet date as well as to adjust for any projected variance in case reserving. Actuaries estimate ultimate losses and loss adjustment expenses using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made. The process of estimating Loss Reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. The estimation of Loss Reserves for the reinsurance segment is subject to the same risk factors as the estimation of Loss Reserves for the insurance segment. In addition, the inherent uncertainties of estimating such reserves are even greater for reinsurers, due primarily to the following factors: (1) the claim-tail for reinsurers is generally longer because claims are first reported to the ceding company and then to the reinsurer through one or more intermediaries, (2) the reliance on premium estimates, where reports have not been received from the ceding company, in the reserving process, (3) the potential for writing a number of reinsurance contracts with different ceding companies with the same exposure to a single loss event, (4) the diversity of loss development patterns among different types of reinsurance contracts, (5) the necessary reliance on the ceding companies for information regarding reported claims and (6) the differing reserving practices among ceding companies. Ultimate losses and loss adjustment expenses are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to persist into the future.As with the insurance segment, the process of estimating Loss Reserves for the reinsurance segment involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. As discussed above, such uncertainty is greater for reinsurers compared to insurers. As a result, our reinsurance operations obtain information from numerous sources to assist in the process. Pricing actuaries from the reinsurance segment devote considerable effort to understanding and analyzing a ceding company’s operations and loss history during the underwriting of the business, using a combination of ceding company and industry statistics. Such statistics normally include historical premium and loss data by class of business, individual claim information for larger claims, distributions of insurance limits provided, loss reporting and payment patterns, and rate change history. This analysis is used to project expected loss ratios for each treaty during the upcoming contract period. As mentioned above, there can be a considerable time lag from the time a claim is reported to a ceding company to the time it is reported to the reinsurer. The lag can be several years in some cases and may be attributed to a number of reasons, including the time it takes to investigate a claim, delays associated with the litigation process, the deterioration in a claimant’s physical condition many years after an accident occurs, the case reserving approach of the ceding company, etc. In the reserving process, the Company assumes that such lags are predictable, on average, over time and therefore the lags are contemplated in the loss reporting patterns used in their actuarial methods. This means that the reinsurance segment must rely on estimates for a longer period of time than does an insurance company. Backlogs in the recording of assumed reinsurance can also complicate the accuracy of loss reserve estimation. As of December 31, 2020 there were no significant backlogs related to the processing of assumed reinsurance information at our reinsurance operations. The reinsurance segment relies heavily on information reported by ceding companies, as discussed above. In order to determine the accuracy and completeness of such information, underwriters, actuaries, and claims personnel often perform audits of ceding companies and regularly review information received from ceding companies for unusual or unexpected results. Material findings are usually discussed with the ceding companies. The Company sometimes encounters situations where they determine that a claim presentation from a ceding company is not in accordance with contract terms. In these situations, the Company attempts to resolve the dispute with the ceding company. Most situations are resolved amicably and without the need for litigation or arbitration. However, in the infrequent situations where a resolution is not possible, the Company will vigorously defend its position in such disputes. Although Loss Reserves are initially determined based on underwriting and pricing analysis, the C |
