v3.25.2
Claim and Claim Adjustment Expense Reserves
 6 Months Ended
Jun. 30, 2025
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]  
Claim and Claim Adjustment Expense Reserves Claim and Claim Adjustment Expense Reserves
Claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (IBNR) claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, economic, medical and social inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Claim and claim adjustment expense reserves are also maintained for the Company's structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries review mortality experience on an annual basis. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in our results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $62 million and $159 million for the three and six months ended June 30, 2025 and $82 million and $170 million for the three and six months ended June 30, 2024 driven by severe weather related events.
Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves.
For the six months ended June 30
(In millions)20252024
Reserves, beginning of year:
Gross$24,976 $23,304 
Ceded5,713 5,141 
Net reserves, beginning of year19,263 18,163 
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year3,309 3,039 
Increase (decrease) in provision for insured events of prior years189 19 
Amortization of discount20 20 
Total net incurred (1)
3,518 3,078 
Net payments attributable to:
Current year events(316)(308)
Prior year events(2,391)(2,259)
Total net payments(2,707)(2,567)
Foreign currency translation adjustment and other199 (58)
Net reserves, end of period20,273 18,616 
Ceded reserves, end of period5,930 5,358 
Gross reserves, end of period$26,203 $23,974 
(1) Total net incurred does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits and policyholders' dividends, which are not reflected in the table above.
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
Periods ended June 30Three MonthsSix Months
(In millions)2025202420252024
Pretax (favorable) unfavorable development:
Specialty$— $(3)$10 $(8)
Commercial(4)(6)47 (8)
International— (3)— (3)
Corporate & Other112 35 134 35 
Total pretax (favorable) unfavorable development$108 $23 $191 $16 
Following the second quarter annual review of Corporate & Other reserves, including legacy mass tort exposures, unfavorable development of $112 million was recorded within the Corporate & Other segment for the three months ended June 30, 2025, largely associated with legacy mass tort abuse claim activity, the on-going effects of social inflation, and the anticipated agreement in principle with regards to the Diocese of Rochester. Unfavorable development of $134 million was recorded for the six months ended June 30, 2025, primarily driven by the second quarter change. Unfavorable development of $35 million was recorded within the Corporate & Other segment for the three and six months ended June 30, 2024, largely associated with legacy mass tort abuse reserves.
Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Periods ended June 30Three MonthsSix Months
(In millions)2025202420252024
Pretax (favorable) unfavorable development:
Medical Professional Liability$— $(2)$— $(2)
Other Professional Liability and Management Liability18 17 18 17 
Surety(22)(8)(22)(26)
Warranty— — 10 13 
Other4 (10)4 (10)
Total pretax (favorable) unfavorable development$— $(3)$10 $(8)
Three Months
2025
Unfavorable development in other professional liability and management liability was primarily due to higher than expected claim severity and frequency in the Company's professional errors and omissions (E&O) business.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in multiple accident years.
2024
Unfavorable development in other professional liability and management liability was primarily due to higher than expected claim severity and frequency in the Company's professional E&O and cyber businesses.
Favorable development in other was primarily due to favorable loss emergence in casualty coverages associated with healthcare products.
Six Months
2025
Unfavorable development in other professional liability and management liability was primarily due to higher than expected claim severity and frequency in the Company's professional E&O business.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in multiple accident years.
Unfavorable development in warranty was primarily due to higher than expected frequency and severity in the most recent accident year for auto warranty.
2024
Unfavorable development in other professional liability and management liability was primarily due to higher than expected claim severity and frequency in the Company's professional E&O and cyber businesses.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in multiple accident years.
Unfavorable development in warranty was primarily due to higher than expected frequency and severity in a recent accident year.
Favorable development in other was primarily due to favorable loss emergence in casualty coverages associated with healthcare products.
Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Periods ended June 30Three MonthsSix Months
(In millions)2025202420252024
Pretax (favorable) unfavorable development:
Commercial Auto$— $21 $50 $21 
General Liability62 19 62 19 
Workers' Compensation(66)(47)(65)(49)
Property and Other— 1 — 1 
Total pretax (favorable) unfavorable development$(4)$(6)$47 $(8)
Three Months
2025
Unfavorable development in general liability was due to higher than expected claim severity in multiple accident years going back to 2016.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
2024
Unfavorable development in commercial auto was due to higher than expected claim severity in recent accident years.
Unfavorable development in general liability was due to higher than expected claim severity in multiple accident years going back to 2014 and prior.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Six Months
2025
Unfavorable development in commercial auto was due to higher than expected claim severity largely in the Company’s construction business in the most recent accident year.
Unfavorable development in general liability was due to higher than expected claim severity in multiple accident years going back to 2016.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
2024
Unfavorable development in commercial auto was due to higher than expected claim severity in recent accident years.
Unfavorable development in general liability was due to higher than expected claim severity in multiple accident years going back to 2014 and prior.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
International
The following table presents further detail of the development recorded for the International segment.
Periods ended June 30Three MonthsSix Months
(In millions)2025202420252024
Pretax (favorable) unfavorable development:
Commercial$(3)$6 $(3)$6 
Specialty4 (9)4 (9)
Other(1)— (1)— 
Total pretax (favorable) unfavorable development $— $(3)$— $(3)
Asbestos & Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a Loss Portfolio Transfer (LPT). At the effective date of the transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, the Company recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Condensed Consolidated Statements of Operations.
The impact of the LPT on the Condensed Consolidated Statements of Operations was the recognition of a retroactive reinsurance benefit of $8 million and $13 million for the three months ended June 30, 2025 and 2024 and $25 million for the six months ended June 30, 2025 and 2024. As of June 30, 2025 and December 31, 2024, the cumulative amounts ceded under the LPT were $3.7 billion. The unrecognized deferred retroactive reinsurance benefit was $400 million and $425 million as of June 30, 2025 and December 31, 2024 and is included within Other liabilities on the Condensed Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $2.2 billion as of June 30, 2025. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the Company’s A&EP claims.
Credit Risk for Ceded Reserves
The majority of the Company’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.