4.	Reserves for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of reserves for losses and loss adjustment expenses (“LAE”):

	For the Three Months Ended March 31,
(in millions)	2015			2014
Net reserves beginning of the year	$	2,137.1		$	2,107.6
Add:
Losses and LAE incurred during current calendar year, net of reinsurance:
Current accident year		187.4			191.4
Prior accident years		(3.7	)		(8.9	)
Losses and LAE incurred during calendar year, net of reinsurance		183.7			182.5
Deduct:
Losses and LAE payments made during current calendar year, net of reinsurance:
Current accident year		19.8			27.9
Prior accident years		141.0			150.1
Losses and LAE payments made during current calendar year, net of reinsurance:		160.8			178.0
Change in participation interest ⁽¹⁾		(1.2	)		24.7
Foreign exchange adjustments		(6.0	)		1.7
Net reserves - end of period		2,152.8			2,138.5
Add:
Reinsurance recoverables on unpaid losses and LAE, end of period		882.3			903.9
Gross reserves - end of period	$	3,035.1		$	3,042.4

⁽¹⁾	Amount represents (decreases) increases in reserves due to change in syndicate participation

Reserves for losses and LAE represent the estimated indemnity cost and related adjustment expenses necessary to investigate and settle claims. Such estimates are based upon individual case estimates for reported claims, estimates from ceding companies for reinsurance assumed and actuarial estimates for losses that have been incurred but not yet reported to the insurer. Any change in probable ultimate liabilities is reflected in current operating results.

Impacting losses and LAE for the three months ended March 31, 2015 was $3.7 million in favorable prior years’ loss reserve development comprised of the following: $8.2 million of net favorable development in the Excess and Surplus Lines segment primarily caused by favorable development in the general and products liability lines and commercial automobile, partially offset by unfavorable development in property lines; $7.2 million of net unfavorable development in the Commercial Specialty segment, primarily driven by unfavorable development in general liability due to increases in claim severity, as well as unfavorable development in short tail lines and workers compensation, partially offset by favorable development in auto liability; $2.5 million of net favorable development in the International Specialty segment primarily driven by favorable development in Argo Re and long-tail lines, partially offset by unfavorable development in the Brazil unit; $0.3 million of net favorable development in the Syndicate 1200 segment primarily driven by favorable development in various property classes, partially offset by unfavorable development in general liability; and $0.1 million of unfavorable development in the Run-off Lines segment primarily caused by unfavorable development in workers compensation lines and assumed asbestos and environmental liability, offset in part by favorable development in run-off reinsurance claims.

Impacting losses and LAE for the three months ended March 31, 2014 was $8.9 million in favorable prior years’ loss reserve development comprised of the following: $8.0 million of net favorable development in the Excess and Surplus Lines segment primarily caused by favorable development of $21.6 million in the general and products liability lines, partially offset by $9.4 million unfavorable development in commercial automobile and $4.2 million of unfavorable development in property lines; $2.0 million of net unfavorable development in the Commercial Specialty segment, primarily driven by $6.7 million of unfavorable development in general liability due to increases in claim severity, partially offset by $4.3 million of favorable development in workers compensation and $1.1 million of favorable development in short-tail lines; $0.4 million of net unfavorable development in the International Specialty segment; $8.8 million of net favorable development in the Syndicate 1200 segment primarily driven by favorable development in marine and energy lines, as well as favorable development in professional indemnity and general liability; and $5.5 million of unfavorable development in the Run-off Lines segment primarily caused by $4.5 million of unfavorable development in workers compensation lines driven by increasing medical costs on older claims, as well as $1.0 million unfavorable development in asbestos liability on assumed business.

In the opinion of management, our reserves represent the best estimate of our ultimate liabilities, based on currently known facts, current law, current technology and assumptions considered reasonable where facts are not known. Due to the significant uncertainties and related management judgments, there can be no assurance that future loss development, favorable or unfavorable, will not occur.