Net loss and loss expense reserves related to acquisition of Cincinnati Global at February 28, 2019

  
NOTE 4 – Property Casualty Loss and Loss ExpensesWe use actuarial methods, models, assumptions and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including IBNR claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and finance management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate.  
Our reserving process takes into account known facts and interpretations of circumstances and factors including the type of claim, policy provisions pertaining to each claim, potential subrogation or salvage recoverable, large loss activity and trends, new business activity, judicial decisions, economic conditions, changes in law and regulation and product and underwriting changes. There have been no significant changes in methodologies and assumptions used in calculating loss and loss expense reserves for all years presented. There were no material additional premiums or return premiums accrued for as a result of prior-year effects. Our claims representatives establish case reserves when claims are reported to provide for our unpaid loss and loss expense obligation associated with individual claims.   
For events designated as natural catastrophes resulting in losses incurred related to direct premiums, we calculate IBNR reserves directly as a result of an estimated claim counts and estimated average dollar amount per claim for each event. Once individual case reserves are established for a catastrophe event, we reduce the IBNR reserves.  
Our actuarial staff uses generally accepted actuarial methods and models to derive ultimate loss and IBNR reserve estimates. The time interval between a claims occurrence and its settlement is one of the crucial attributes when estimating ultimate losses and IBNR reserves.   
Due to the uncertainties inherent with loss reserves, our ultimate loss experience could prove better or worse than what our carried reserves reflect. To the extent that reserves are inadequate and are required to be increased, the amount of the increase is a charge in that period, raising our loss and loss expense ratio and reducing earnings. To the extent that reserves are redundant and are required to be released, the amount of the release is a credit in that period, reducing our loss and loss expense ratio and increasing earnings.   
This table summarizes activity for our consolidated property casualty loss and loss expense reserves:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (Dollars in millions) |  | Years ended December 31, |
|   |  | 2021 |  | 2020 |  | 2019 |
| Gross loss and loss expense reserves, January 1 |  | $ | 6,677  |  |  | $ | 6,088  |  |  | $ | 5,646  |  |
| Less reinsurance recoverable |  | 277  |  |  | 342  |  |  | 238  |  |
| Net loss and loss expense reserves, January 1 |  | 6,400  |  |  | 5,746  |  |  | 5,408  |  |
|  |  |  |  |  |  |  |
| Net loss and loss expense reserves related to acquisition of Cincinnati Global at  February 28, 2019 |  | —  |  |  | —  |  |  | 246  |  |
|  |  |  |  |  |  |  |
| Net incurred loss and loss expenses related to: |  |   |  |   |  |   |
| Current accident year |  | 4,024  |  |  | 3,968  |  |  | 3,600  |  |
| Prior accident years |  | (428) |  |  | (131) |  |  | (248) |  |
| Total incurred |  | 3,596  |  |  | 3,837  |  |  | 3,352  |  |
| Net paid loss and loss expenses related to: |  |   |  |   |  |   |
| Current accident year |  | 1,379  |  |  | 1,493  |  |  | 1,462  |  |
| Prior accident years |  | 1,715  |  |  | 1,690  |  |  | 1,798  |  |
| Total paid |  | 3,094  |  |  | 3,183  |  |  | 3,260  |  |
|  |  |  |  |  |  |  |
| Net loss and loss expense reserves, December 31 |  | 6,902  |  |  | 6,400  |  |  | 5,746  |  |
| Plus reinsurance recoverable |  | 327  |  |  | 277  |  |  | 342  |  |
| Gross loss and loss expense reserves, December 31 |  | $ | 7,229  |  |  | $ | 6,677  |  |  | $ | 6,088  |  |
|  |  |  |  |  |  |  |

Cincinnati Financial Corporation - 2021 10-K - Page 141
