Prior Line Development: It’s all A&E

Pawing through 2012 financials, I noticed that the development on claims older than 10 years grew by $2.3B. Interesting given the total development on prior was $12.3B favorable. I guessed asbestos and environmental reserves drove the old years, so I put together this chart:

prior vs A&E 2012The chart is a little busy. The blue columns are total development on claims 10 years and older, by calendar year. The red dots are asbestos losses. The green line signifies all non-A&E losses on claims 10 years and older.

(From here on, I’m calling development on claims 10 years and older prior line development, because that’s the line it is taken from in Schedule P, Part 2. Please don’t confuse prior line development with prior year development, the latter being development on all prior year claims, not just the oldest.)

All amounts are billions of dollars. I forgot to label the y-axis – sorry.

First, notice to the far right: For the past two years, prior line development has been close to zero, once you exclude A&E claims.  (I’m assuming all A&E claims are more than 10 years old. ISO’s GL policy excluded A&E around 1986, so this is a pretty safe assumption for every year in the table, except maybe the earliest one or two.)

Next, notice that in every year except 2001, the red dots are almost always above the green line. That means almost every year, A&E losses are more than half all prior-line losses. Toting up all years, A&E is 78% of the prior line total.

A&E emergence has slowed in recent years, averaging $2.4B across the past seven years back to ’96, vs. $3.9B for the seven years before that. Even with that, A&E drags on the industry combined ratio by about six-tenths of a percentage point.

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