RESERVE FOR LOSSES AND LOSS EXPENSES

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



	September 30, 2014		December 31, 2013
Outstanding loss reserves	$	1,585,900	$	1,520,867
Reserves for losses incurred but not reported	4,466,363		4,245,662
Reserve for losses and loss expenses	$	6,052,263	$	5,766,529

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 recoverables.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Gross liability at beginning of period	$	5,935,678		$	5,696,865		$	5,766,529		$	5,645,549
Reinsurance recoverable at beginning of period	(1,301,742		)	(1,179,525		)	(1,234,504		)	(1,141,110		)
Net liability at beginning of period	4,633,936			4,517,340			4,532,025			4,504,439
Net losses incurred related to:
Current year	382,970			338,420			1,067,111			961,224
Prior years	(46,880		)	(61,450		)	(140,880		)	(153,948		)
Total incurred	336,090			276,970			926,231			807,276
Net paid losses related to:
Current year	53,596			30,399			80,401			54,983
Prior years	202,626			213,252			666,555			696,137
Total paid	256,222			243,651			746,956			751,120
Foreign exchange revaluation	(10,550		)	4,088			(8,046		)	(5,848		)
Net liability at end of period	4,703,254			4,554,747			4,703,254			4,554,747
Reinsurance recoverable at end of period	1,349,009			1,226,034			1,349,009			1,226,034
Gross liability at end of period	$	6,052,263		$	5,780,781		$	6,052,263		$	5,780,781

For the three months ended September 30, 2014, the Company recognized unfavorable prior year reserve development in its U.S. insurance segment and net favorable reserve development in its international insurance and reinsurance segments. The net unfavorable prior year reserve development for the U.S. insurance segment primarily related to the 2011 through 2013 loss years was due to a higher level of reported claims in the healthcare line of business and net unfavorable prior year reserve development for the 2005 loss year primarily related to the professional liability line of business. The net favorable reserve development in the international insurance segment was primarily due to lower than expected loss emergence across most lines of business and loss years partially offset by unfavorable prior reserve development for the 2012 loss year related to adverse development on two reported claims in our professional liability line of business. The net favorable reserve development in the reinsurance segment was primarily due to lower than expected loss activity in the property reinsurance line of business for the 2013 loss year.

For the nine months ended September 30, 2014, the Company recognized unfavorable prior year reserve development in its U.S. insurance segment and net favorable reserve development in its international insurance and reinsurance segments. The net unfavorable prior year reserve development in the U.S. insurance segment primarily related to the 2011 through 2013 loss years in our healthcare lines of business and was due to higher than expected loss frequency and severity. The net favorable prior year reserve development in the international insurance segment was primarily due to favorable reserve development for the 2007 loss year in the professional liability line of business, net favorable development for the 2009 and 2010 loss years due to actual loss emergence being lower than anticipated across several lines of business, net unfavorable development for the 2012 loss year in the professional liability line of business and the unfavorable reserve development for the 2013 loss year in the healthcare line of business. The net favorable reserve development in the reinsurance segment was primarily due to lower than expected loss activity in the property reinsurance line of business for the 2013 loss year.

For the three months ended September 30, 2013, the Company had net favorable reserve development in its international insurance and reinsurance segments due to actual loss emergence being lower than initially expected. The majority of the net favorable reserve development was recognized in the 2007 through 2011 loss years across most lines of business. In addition, the reinsurance segment recognized net favorable reserve development for the 2012 loss year due to the low level of reported property losses. This was partially offset by unfavorable development in the U.S. insurance segment in the 2011 and 2012 loss years primarily due to a higher level of reported claims for certain healthcare, errors and omissions and private/not for profit directors’ and officers’ lines of business.

For the nine months ended September 30, 2013, the Company had net favorable reserve development in its international insurance and reinsurance segments due to actual loss emergence being lower than initially expected for most loss years. The reinsurance segment recognized net favorable reserve development for the 2012 loss year due to the low level of reported property losses. This was partially offset by adverse development in the U.S. insurance segment in the 2011 and 2012 loss years for certain healthcare, errors and omissions and not-for-profit directors’ and officers’ classes of business.

While the Company at times has experienced favorable reserve 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.