Reserve for Losses and Loss Expenses

6 Months Ended

Jun. 30, 2011

Reserve for Losses and Loss Expenses

Reserve for Losses and Loss Expenses

7. RESERVE FOR LOSSES AND LOSS EXPENSES

     The reserve for losses and loss expenses consists of the following:

	June 30,		December 31,
	2011		2010
Outstanding loss reserves	$	1,462,144	$	1,166,516
Reserves for losses incurred but not reported		3,789,160		3,712,672
Reserve for losses and loss expenses	$	5,251,304	$	4,879,188

     The table below is a reconciliation of the beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoveries.

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Gross liability at beginning of period	$	5,100,643		$	4,853,359		$	4,879,188		$	4,761,772
Reinsurance recoverable at beginning of period		(975,523	)		(920,480	)		(927,588	)		(919,991	)
Net liability at beginning of period		4,125,120			3,932,879			3,951,600			3,841,781
Net losses incurred related to:
Commutation of variable-rated reinsurance contracts		11,529			—			11,529			8,864
Current year		279,513			252,816			628,315			550,062
Prior years		(55,229	)		(64,094	)		(99,579	)		(138,050	)
Total incurred		235,813			188,722			540,265			420,876
Net paid losses related to:
Current year		19,579			26,704			21,279			33,410
Prior years		109,238			102,690			243,596			231,990
Total paid		128,817			129,394			264,875			265,400
Foreign exchange revaluation		5,237			(4,207	)		10,363			(9,257	)
Net liability at end of period		4,237,353			3,988,000			4,237,353			3,988,000
Reinsurance recoverable at end of period		1,013,951			932,435			1,013,951			932,435
Gross liability at end of period	$	5,251,304		$	4,920,435		$	5,251,304		$	4,920,435

     During the three and six months ended June 30, 2011, the Company commuted certain variable-rated reinsurance contracts that have swing-rated provisions, reducing ceded losses by $11,529 in accordance with the terms of the contracts resulting in a net gain of $865.

     For the three months ended June 30, 2011, the Company had net favorable reserve development in each of its segments due to actual loss emergence being lower than the initial expected loss emergence. The majority of the net favorable reserve development was recognized in the reinsurance segment related to the 2004 through 2007 loss years for casualty reinsurance lines and in the international insurance segment related to the 2004 through 2007 loss years for casualty lines of business.

     For the six months ended June 30, 2011, the Company had net favorable reserve development in its international and reinsurance segments due to actual loss emergence being lower than the initial expected loss emergence. The majority of the net favorable reserve development was recognized in the international insurance and reinsurance segments in the 2004 through 2007 loss years related to casualty insurance and reinsurance lines of business. The Company had net unfavorable reserve development in its U.S. insurance segment due to actual loss emergence being higher than the initial expected loss emergence. The majority of the net unfavorable reserve development was recognized in the 2006 and 2010 loss years related to the professional liability line of business.

     For the three and six months ended June 30, 2010, the Company had net favorable reserve development in each of its segments due to actual loss emergence being lower than the initial expected loss emergence. For the three months ended June 30, 2010, the majority of the net favorable reserve development was recognized in the international insurance segment in the 2005 and 2008 loss years related to the general casualty and general property lines of business and in the U.S. insurance segment in the 2004 through 2005 loss years related to the professional liability and general casualty lines of business. For the six months ended June 30, 2010, the majority of the net favorable reserve development was recognized in the international and U.S. insurance segment in the 2004 through 2005 loss years related to the general casualty, professional liability and healthcare lines of business.

     While the Company has experienced favorable development in its insurance and reinsurance lines, there is no assurance that conditions and trends that have affected the development of liabilities in the past will continue. It is not appropriate to extrapolate future redundancies based on prior years' development. The methodology of estimating loss reserves is periodically reviewed to ensure that the key assumptions used in the actuarial models continue to be appropriate.