RESERVE FOR LOSSES AND LOSS EXPENSES

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



	September 30, 2015		December 31, 2014
Outstanding loss reserves	$	1,707,409	$	1,514,051
Reserves for losses incurred but not reported	4,729,170		4,367,114
Reserve for losses and loss expenses	$	6,436,579	$	5,881,165

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,
	2015			2014			2015			2014
Gross liability at beginning of period	$	6,363,948		$	5,935,678		$	5,881,165		$	5,766,529
Reinsurance recoverable at beginning of period	(1,433,109		)	(1,301,742		)	(1,340,256		)	(1,234,504		)
Net liability at beginning of period	4,930,839			4,633,936			4,540,909			4,532,025
Acquisition of net reserves for losses and loss expenses	—			—			256,991			—
Net losses incurred related to:
Current year	425,473			382,970			1,267,649			1,067,111
Prior years	(8,591		)	(46,880		)	(94,071		)	(140,880		)
Total incurred	416,882			336,090			1,173,578			926,231
Net paid losses related to:
Current year	60,828			53,596			95,388			80,401
Prior years	287,840			202,626			866,770			666,555
Total paid	348,668			256,222			962,158			746,956
Foreign exchange revaluation	(12,306		)	(10,550		)	(22,573		)	(8,046		)
Net liability at end of period	4,986,747			4,703,254			4,986,747			4,703,254
Reinsurance recoverable at end of period	1,449,832			1,349,009			1,449,832			1,349,009
Gross liability at end of period	$	6,436,579		$	6,052,263		$	6,436,579		$	6,052,263

The net reserve for losses and loss expenses acquired of $256,991 represents the net reserves acquired from the Hong Kong and Singapore branches of RSA of $252,848 and the net reserves from the Labuan branch of RSA of $4,143.

For the three months ended September 30, 2015, the Company recognized net favorable prior year reserve development primarily due to lower than expected loss emergence across each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability line of business, partially offset by unfavorable prior year development in the casualty line of business from the 2012 to 2014 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the professional liability line of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and casualty reinsurance lines of business.

For the three months ended September 30, 2014, the Company recognized net favorable prior year reserve development in each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, casualty and programs lines of business, partially offset by unfavorable prior year development in the healthcare line of business mainly from the 2011 to 2013 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the professional liability and general casualty lines 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, 2015, the Company recognized net favorable prior year reserve development primarily due to lower than expected loss emergence across each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, programs and property lines of business, partially offset by unfavorable prior year development in the healthcare and casualty lines of business mainly from the 2012 and 2013 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the property, professional liability and casualty lines of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and casualty reinsurance lines of business.

For the nine months ended September 30, 2014, the Company recognized net favorable prior year reserve development in each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, programs and general property lines of business, partially offset by unfavorable prior year development in the healthcare and general casualty lines of business. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to net favorable reserve development in the professional liability, general casualty and general property lines 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.

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.