Retroactive reinsurance policies provide indemnification of losses and LAE of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Exposures may include significant asbestos, environmental and other mass tort claims. Retroactive reinsurance contracts generally stipulate aggregate policy limits, and our exposure to such claims under these contracts is likewise limited. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and LAE for each of the three years ended December 31, 2025 follow (in millions).

We classify incurred and paid losses and LAE based on the inception dates of the contracts, which reflect when our exposure to losses began. We believe that analysis of losses incurred and paid by the accident year of the underlying event is of limited relevance given that our agreed exposure to losses commenced on the specified contract inception date. We also believe that the classification of reported claims and case development liabilities has little or no practical analytical value. Substantially all of the losses and LAE incurred and paid related to contracts with inception dates prior to 2020.

Losses and LAE incurred include changes in estimated ultimate liabilities and related adjustments to deferred charge assets arising from the changes in the estimated timing and amount of loss payments. In 2023, we increased estimated ultimate liabilities under certain contracts by $1.1 billion, primarily attributable to revised estimates for asbestos, environmental and other casualty claims. Including adjustments to deferred charge assets, the increase in ultimate liabilities produced an incremental net expense of approximately $650 million in 2023. Deferred charge assets on retroactive reinsurance contracts were $8.1 billion at December 31, 2025 and $8.8 billion at December 31, 2024.

In establishing retroactive reinsurance claim liabilities, we analyze historical aggregate loss payment patterns and project losses under various probability and severity weighted scenarios. We expect the resolution periods for many contracts to be very long, with some lasting several decades. We monitor claim payment activity and review ceding company reports and other information, including relevant information concerning the underlying losses. We revise the expected timing and amounts of ultimate losses periodically or when significant events occur.

Our estimates of ultimate liabilities for asbestos and environmental exposures under our contracts were approximately $11.1 billion at December 31, 2025 and $11.9 billion at December 31, 2024. We monitor evolving case law and its effect on asbestos, environmental and other mass tort claims. Changing laws or government regulations, as well as newly identified toxins and injury events, newly reported claims, new theories of liability, new contract interpretations and other factors could result in increases in these liabilities, which could be material to our results of operations. We are unable to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible.