5.	Reserves for Losses and Loss Adjustment Expenses

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

	For the Six Months Ended June 30,
(in millions)	2017			2016
Net reserves beginning of the year	$	2,180.2		$	2,133.3
Net Maybrooke reserves acquired		132.6			—
Add:
Losses and LAE incurred during current calendar year, net of reinsurance:
Current accident year		447.4			404.1
Prior accident years		5.7			(15.9	)
Losses and LAE incurred during calendar year, net of reinsurance		453.1			388.2
Deduct:
Losses and LAE payments made during current calendar year, net of reinsurance:
Current accident year		88.9			65.3
Prior accident years		290.8			300.1
Losses and LAE payments made during current calendar year, net of reinsurance:		379.7			365.4
Change in participation interest ⁽¹⁾		(23.2	)		(36.3	)
Foreign exchange adjustments		1.8			4.4
Net reserves - end of period		2,364.8			2,124.2
Add:
Reinsurance recoverables on unpaid losses and LAE, end of year		1,268.0			1,057.7
Gross reserves - end of period	$	3,632.8		$	3,181.9

⁽¹⁾	Amount represents decreases 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.

The impact from the unfavorable (favorable) development of prior accident years’ loss and LAE reserves on each reporting segment is presented below:

	For the Six Months Ended June 30,
(in millions)	2017			2016
U.S. Operations	$	(18.0	)	$	(11.9	)
International Operations		19.6			(10.2	)
Run-off Lines		4.1			6.2
Total unfavorable (favorable) prior-year development	$	5.7		$	(15.9	)

The following describes the primary factors behind each segment’s prior accident year reserve development for the six months ended June 30, 2017, and 2016:

Six months ended June 30, 2017:

•

U.S. Operations: Favorable development for workers compensation, surety, commercial auto, and commercial multi-peril lines.

•

International Operations: Unfavorable development in the property, liability, and specialty lines.

•

Run-off Lines: Unfavorable development in run-off workers compensation and asbestos liability lines.

Six months ended June 30, 2016:

•

U.S. Operations: Favorable development within commercial automobile lines of business, surety, and general and products liability lines.

•

International Operations: Favorable development within the property, liability, and professional lines.

•

Run-off Lines: Unfavorable development in run-off workers compensation and asbestos liability lines, partially offset by favorable development in the run-off reinsurance lines.

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 favorable or unfavorable loss development, which may be material, will not occur.