RESERVE FOR LOSSES AND LOSS EXPENSES

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



	December 31,
	2014		2013
Outstanding loss reserves	$	1,514,051	$	1,520,867
Reserves for losses incurred but not reported	4,367,114		4,245,662
Reserve for losses and loss expenses	$	5,881,165	$	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.



	Year Ended December 31,
	2014			2013			2012
Gross liability at beginning of year	$	5,766,529		$	5,645,549		$	5,225,143
Reinsurance recoverable at beginning of year	(1,234,504		)	(1,141,110		)	(1,002,919		)
Net liability at beginning of year	4,532,025			4,504,439			4,222,224
Net losses incurred related to:
Current year	1,411,797			1,303,573			1,309,613
Prior years	(212,607		)	(180,331		)	(170,349		)
Total incurred	1,199,190			1,123,242			1,139,264
Net paid losses related to:
Current year	171,824			115,669			117,123
Prior years	1,001,537			973,987			743,844
Total paid	1,173,361			1,089,656			860,967
Foreign exchange revaluation	(16,945		)	(6,000		)	3,918
Net liability at end of year	4,540,909			4,532,025			4,504,439
Reinsurance recoverable at end of year	1,340,256			1,234,504			1,141,110
Gross liability at end of year	$	5,881,165		$	5,766,529		$	5,645,549

For the year ended December 31, 2014, the Company recognized net favorable reserve development in each of its operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment primarily related to the 2006, 2007, 2009 and 2010 loss years partially offset by unfavorable reserve development from the 2011 to 2013 loss years. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to favorable reserve development for the 2008 to 2010 loss years. The net favorable reserve development in the Reinsurance segment was primarily due to benign global property catastrophe activity for the 2013 loss year.

For the year ended December 31, 2013, the Company recognized net favorable reserve development in each of its operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment primarily related to the 2006 through 2008 loss years partially offset by unfavorable reserve development from the 2010 and 2011 loss years. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to favorable reserve development for the 2006 to 2008 loss years. The net favorable prior year reserve development in the Reinsurance segment was primarily due to favorable reserve development for the 2005 to 2008 loss years.

For the year ended December 31, 2012, the Company had net favorable reserve development in each of its operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment primarily related to the 2006 through 2010 loss years partially offset by unfavorable reserve development from the 2011 and 2012 loss years. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to favorable reserve development for the 2006 to 2010 loss years. The net favorable reserve development in the Reinsurance segment was primarily due to lower than expected loss activity for the 2012 loss year.

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.