The liability for unpaid claims and claim adjustment expenses as of 31 December is analysed as follows:

A reconciliation of the opening and closing reserve balances for non-life unpaid claims and claim adjustment expenses for the period is presented as follows:

The Group does not discount liabilities arising from prospective property and casualty insurance and reinsurance contracts, including liabilities which are discounted for US statutory reporting purposes. Liabilities arising from property and casualty insurance and reinsurance contracts acquired in a business combination are initially recognised at fair value in accordance with the purchase method of accounting.

Prior-year development

In 2012, claims development on prior years was driven by favourable experience in all lines except accident & health and motor. For property, releases on earlier years more than offset increases for some of the large 2011 claims, mainly the floods in Thailand and earthquakes in New Zealand. For liability, favourable experience across all regions more than offset increases for asbestos and environmental losses and one large directors’ and officers’ liability insurance claim. For motor, the unfavourable experience is attributed to various issues in Europe and Americas. Accident & health saw small increases in losses driven by exposures in the US, partly offset by releases following a large commutation. For special lines, there was favourable development in most regions and most lines.

In 2011, claims development on prior years was driven by favourable experience in property, liability, credit and other specialty lines. Some reserve strengthening was absorbed in the overall number, on US Workers’ Compensation business, UK Motor business and an increase for US asbestos and environmental losses.

The adverse development cover with Berkshire Hathaway, which covers losses from 2008 or earlier, remains in place but had no impact on the result for 2011 or 2012, as it was already recognised at the minimum commutation value at year-end 2010 and remains recognised at that value.

US asbestos and environmental claims exposure

The Group’s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986, in particular in the area of US asbestos and environmental liability.

At the end of 2012, the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 991 million. During 2012, the Group incurred positive ultimate loss development of USD 24 million and paid net against these liabilities USD 160 million.

Estimating ultimate asbestos and environmental liabilities is particularly complex for a number of reasons relating in part to the long period between exposure and manifestation of claims, and in part to other factors, which include risks and lack of predictability inherent in complex litigation, changes in projected costs to resolve, and in the projected number of, asbestos and environmental claims, the effect of bankruptcy protection, insolvencies, and changes in the legal, legislative and regulatory environment. As a result, the Group believes that projection of exposures for asbestos and environmental claims is subject to far less predictability relative to non-environmental and non-asbestos exposures. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts and the current state of the law. However, reserves are subject to revision as new information becomes available and as claims develop. Additional liabilities may arise for amounts in excess of reserves, and the Group’s estimate of claims and claim adjustment expenses may change. Any such additional liabilities or increases in estimates cannot be reasonably estimated in advance but could result in charges that could be material to operating results.

The Group maintains an active commutation strategy to reduce exposure. When commutation payments are made, the traditional “survival ratio” is artificially reduced by premature payments which should not imply a reduction in reserve adequacy.