RESERVE FOR LOSSES AND LOSS EXPENSES

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



	September 30, 2016		December 31, 2015
Outstanding loss reserves	$	1,751.0	$	1,678.5
Reserves for losses incurred but not reported	4,914.8		4,777.7
Reserve for losses and loss expenses	$	6,665.8	$	6,456.2

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,
	2016			2015			2016			2015
Gross liability at beginning of period	$	6,623.2		$	6,363.9		$	6,456.2		$	5,881.2
Reinsurance recoverable at beginning of period	(1,516.7		)	(1,433.1		)	(1,480.0		)	(1,340.3		)
Net liability at beginning of period	5,106.5			4,930.8			4,976.2			4,540.9
Acquisition of net reserves for losses and loss expenses	—			—			—			257.0
Net losses incurred related to:
Current year	406.0			425.5			1,207.0			1,267.7
Prior years	(29.7		)	(8.6		)	(92.9		)	(94.1		)
Total incurred	376.3			416.9			1,114.1			1,173.6
Net paid losses related to:
Current year	70.6			60.8			111.8			95.4
Prior years	301.1			287.8			864.5			866.8
Total paid	371.7			348.6			976.3			962.2
Foreign exchange revaluation	4.0			(12.3		)	1.1			(22.5		)
Net liability at end of period	5,115.1			4,986.8			5,115.1			4,986.8
Reinsurance recoverable at end of period	1,550.7			1,449.8			1,550.7			1,449.8
Gross liability at end of period	$	6,665.8		$	6,436.6		$	6,665.8		$	6,436.6

The "Acquisition of net reserves for losses and loss expenses" during the nine months ended September 30, 2015 represents the net reserves acquired from the Hong Kong and Singapore branches of RSA of $252.8 million and the net reserves acquired from the Labuan branch of RSA of $4.2 million.

For the three months ended September 30, 2016, the Company recorded net favorable prior year reserve development primarily due to lower than expected claims development in the North American Insurance and Reinsurance segments, partially offset by unfavorable prior year reserve development in the Global Markets Insurance segment. The unfavorable loss reserve development in the Global Markets Insurance segment was primarily due to higher than expected reported losses in the other specialty line of business in the 2014 loss year.

For the nine months ended September 30, 2016, the Company recorded net favorable prior year reserve development in each of its operating segments, primarily due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment was primarily related to the professional liability line of business. The net favorable reserve development in the Global Markets Insurance segment was primarily related to the casualty and property lines of business, partially offset by unfavorable reserve development in the professional liability and other specialty lines of business. The net favorable prior year reserve development in the Reinsurance segment was primarily related to the property reinsurance and specialty reinsurance lines of business, partially offset by net unfavorable prior year reserve development in the casualty reinsurance line of business.

For the three months ended September 30, 2015, the Company recorded net favorable prior year reserve development in each of its operating segments. The net favorable prior year reserve development in the North American Insurance segment was due to net favorable prior year reserve development in loss years 2010 and prior in the casualty and professional liability lines of business. The net favorable reserve development in the Global Markets Insurance segment was primarily related to the casualty and property lines of business across multiple loss years. The net favorable prior year reserve development in the Reinsurance segment was primarily related to the property reinsurance line of business in the 2014 and 2015 loss years.

For the nine months ended September 30, 2015, the Company recorded net favorable prior year reserve development in each of its operating segments primarily due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment was primarily related to the professional liability line of business. The net favorable reserve development in the Global Markets Insurance segment was primarily related to the other specialty and property lines of business, partially offset by unfavorable reserve development in the professional liability line of business. The net favorable prior year reserve development in the Reinsurance segment was primarily related to the property reinsurance and specialty reinsurance lines of business, partially offset by net unfavorable prior year reserve development in the casualty reinsurance line of business.

Although the Company 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.