THG 2018 Annual Report

17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES Reserving Process Overview 0DQDJHPHQW¶V SURFHVV IRU HVWDEOLVKLQJ ORVV UHVHUYHV LV D FRPSUHKHQVLYH SURFHVV WKDW LQYROYHV LQSXW IURP PXOWLSOH IXQFWLRQV WK roughout the organization, including actuarial, finance, claims, legal, underwriting, distribution and business operations management. A review of loss reserves for each of the classes of business which the Company writes is conducted regularly, generally quarterly. This review process takes into consideration a variety of trends that impact the ultimate settlement of claims. Where appropriate, the review includes a review of overall payment patterns and the emergence of paid and reported losses relative to expectations. The loss reserve estimation process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. As part of this process, the Company uses a variety of analytical methods that consider exper LHQFH WUHQGV DQG RWKHU UHOHYDQW IDFWRUV ,QFXUUHG EXW QRW UHSRUWHG ³,%15´ UHVHUYHV DUH JHQHUDOO\ FDOFXODWHG by first projecting the ultimate cost of all claims that have been reported or expected to be reported in the future and then subtracting reported losses and loss adjustment expenses. IBNR reserves include both incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. Reported losses include cumulati YH SDLG ORVVHV DQG ORVV DGMXVWPHQW H[SHQVHV SOXV RXWVWDQGLQJ FDVH UHVHUYHV 7KH &RPSDQ\¶V XOWLPDWH ,%15 UHVHUYHV DUH estimated by management and reserving actuaries on an aggregate basis for each line of business or coverage for loss and loss expense liabilities not reflected within the case reserves. Case reserves are established by claim personnel individually on a claim by claim basis and based on information specific to the occurrence and terms of the underlying policy. Case reserves are periodically reviewed and modified based on new or additional information pertaining to the claim. For events designated as catastrophes, the Company generally calculates IBNR reserves directly as a result of an estimated IBNR claim count and an estimated average claim amount for each event. Such an assessment involves a comprehensive analysis of the nature of the event, of policyholder exposures within the affected geographic area and of available claims intelligence. Carried reserves for each line of business and coverage are determined based on the quarterly loss reserving process. In making the determination, the Company considers numerous quantitative and qualitative factors. Quantitative factors include actual payments made and changes in case reserve estimates in the period, as compared to previously experienced patterns, the maturity of the accident year, trends observed over the recent past, the level of volatility within a particular class of business, the estimated effects of reinsurance, including reinstatement premiums, general economic trends, and other factors. Qualitative factors may include legal and regulatory developments, changes in claim handling and case reserving practices, recent entry into new markets or products, changes in underwriting practices, concerns that the Company does not have sufficient or quality historical reported and paid loss and LAE information with respect to a particular line or segment of business, effects of the economy and political outlook, perceived anomalies in the historical results, evolving trends or other factors. Reserve Rollforward and Prior Year Development The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in results of operations as adjustments to losses and LAE. Often these adjustments are recognized in periods subsequent to the period in which the underlying policy was written and loss event occurred. These types of su EVHTXHQW DGMXVWPHQWV DUH GHVFULEHG DV ³SULRU \HDUV¶ ORVV UHVHUYHV´ 6XFK GHYHORSPHQW FDQ EH HLWKHU IDYRUDEOH RU XQIDYRUDEOH WR WKH &RPSDQ\¶V ILQDQFLDO UHVXOWV DQG PD\ YDU\ E\ OLQH RI EXVLQHVV ,Q WKLV VHFWLRQ DOO DPRXQWV SUHVHQWHG LQFOX de catastrophe losses and LAE, unless otherwise indicated. 121 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP