Progressive 2013 Annual Report Download - page 29

6. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Activity in the loss and loss adjustment expense reserves is summarized as follows:
(millions) 2013 2012 2011
Balance at January 1 $ 7,838.4 $ 7,245.8 $ 7,071.0
Less reinsurance recoverables on unpaid losses 862.1 785.7 704.1
Net balance at January 1 6,976.3 6,460.1 6,366.9
Incurred related to:
Current year 12,427.3 11,926.0 10,876.8
Prior years 45.1 22.0 (242.0)
Total incurred 12,472.4 11,948.0 10,634.8
Paid related to:
Current year 8,095.0 7,895.3 7,289.3
Prior years 3,919.9 3,536.5 3,252.3
Total paid 12,014.9 11,431.8 10,541.6
Net balance at December 31 7,433.8 6,976.3 6,460.1
Plus reinsurance recoverables on unpaid losses 1,045.9 862.1 785.7
Balance at December 31 $ 8,479.7 $ 7,838.4 $ 7,245.8
We experienced minimal unfavorable reserve development of $45.1 million and $22.0 million in 2013 and 2012,
respectively, compared to favorable development of $242.0 million in 2011, which is reflected as “Incurred related to prior
years” in the table above.
2013
• Approximately 80% of the unfavorable reserve development was attributable to accident year 2011, while the
remaining 20% was related to accident year 2012. The aggregate reserve development for accident years 2010
and prior was slightly favorable.
• About 55% of our unfavorable reserve development was in our Commercial Lines business, with the remainder
split about equally between our Personal Lines business and our run-off businesses. In our Personal Lines
business, unfavorable development in our Agency auto channel was offset in large part by favorable development
in our Direct auto channel.
• The unfavorable reserve development in our Agency auto business was in our IBNR reserves due to higher
frequency and severity on late emerging claims, as primarily reflected in the “all other development.”
• Lower than anticipated severity costs on case reserves was the primary contributor to the favorable development in
our Direct auto business.
• In our Commercial Lines business, we experienced unfavorable development due to higher frequency and severity
on late emerging claims primarily in our bodily injury coverage for our truck business.
• In our other businesses, we experienced unfavorable development primarily due to reserve increases in our run-off
professional liability group business based on recent internal actuarial reviews of our claims history.
2012
• The unfavorable prior year reserve development was primarily attributable to accident year 2011 and to a lesser
extent accident year 2010. The aggregate reserve development for accident years 2009 and prior was favorable.
Despite overall unfavorable reserve development, we did experience favorable reserve adjustments, primarily in
our loss adjustment expenses and our personal auto bodily injury reserves for accident years 2009 and 2008.
• Slightly more than half of the total unfavorable reserve development was attributable to our Commercial Lines
business, with the remainder in our personal auto business. In our personal auto business, unfavorable
development in the Agency channel was partially offset by favorable development in the Direct channel, primarily
reflecting that unfavorable development on our personal injury protection (PIP) coverage was more skewed to the
Agency channel, and that our Direct business had favorable development on our collision coverage, as we
experienced more subrogation recoveries in this channel.
App.-A-29