ACE-12.31.

2012-10K

http://www.sec.gov/Archives/edgar/data/896159/00008961591...

Table of Contents

N NO OT TE ES ST TO OC CO ON NS SO OL LIID DA AT TE ED DF FIIN NA AN NC CIIA AL LS ST TA AT TE EM ME EN NT TS S (continued)

ACE Limited and Subsidiaries

The following table presents a reconciliation of unpaid losses and loss expenses:
Years Ended December 31 (in millions of U.S. dollars) 2012 $ 37,477 (11,602) 25,875 14 25,889 $ 2011 37,391 (12,149) 25,242 92 25,334 $ 2010 37,783 (12,745) 25,038 145 25,183

Gross unpaid losses and loss expenses, beginning of year Reinsurance recoverable on unpaid Acquisition of subsidiaries Total Net losses and loss expenses incurred in respect of losses occurring in: Current year Prior years Total Net losses and loss expenses paid in respect of losses occurring in: Current year Prior years Total Foreign currency revaluation and other Net unpaid losses and loss expenses, end of year Reinsurance recoverable on unpaid losses(1) Gross unpaid losses and loss expenses, end of year
(1) Net of provision for uncollectible reinsurance.

losses(1)

Net unpaid losses and loss expenses, beginning of year

10,132 (479) 9,653

10,076 (556) 9,520

8,082 (503) 7,579

4,325 4,894 9,219 224 26,547 11,399 $ 37,946 $

4,209 4,657 8,866 (113) 25,875 11,602 37,477 $

2,689 4,724 7,413 (107) 25,242 12,149 37,391

Net losses and loss expenses incurred includes $479 million, $556 million, and $503 million, of net favorable prior period development in the years ended December 31, 2012, 2011, and 2010, respectively. The following is a summary of prior period development for the periods indicated. The remaining net development for long-tail and short-tail business for each segment comprises numerous favorable and adverse movements across lines and accident years. Insurance North American Insurance North American's active operations experienced net favorable prior period development of $360 million in 2012, representing 2.2 percent of net unpaid reserves at December 31, 2011. Net prior period development was the net result of several underlying favorable and adverse movements. Net favorable development of $245 million on long-tail business included favorable development of $73 million on umbrella and excess casualty business primarily affecting the 2007 and prior accident years; $67 million in the directors and ofcers (D&O) portfolio affecting the 2007 and prior accident years; $57 million on medical risk operations primarily affecting the 2007 and prior accident years; and $39 million on the national accounts portfolios (commercial auto liability, general liability, and workers' compensation lines of business). Net prior period development also included favorable development of $9 million across a number of lines and accident years, none of which was signicant individually or in the aggregate. Favorable development of $115 million on short-tail business included favorable development of $88 million in the property, inland marine and commercial marine portfolios primarily arising on the 2009 through 2011 accident years and favorable development of $27 million on aviation product lines affecting the 2009 and prior

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ACE-12.31.2012-10K

http://www.sec.gov/Archives/edgar/data/896159/00008961591...

accident years. Insurance North American's run-off operations incurred net adverse prior period development of $168 million in the Westchester and Brandywine run-off operations during 2012, which was the net result of adverse movements impacting accident years 2001 and prior, representing one percent of net unpaid reserves at December 31, 2011. Net adverse prior period development was driven by adverse development of $150 million related to the completion of the reserve review during 2012 and $18 million of unallocated loss adjustment expenses due to run-off operating expenses reserved and paid during 2012.

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