Our reserve for losses and loss expenses comprise the following:




As of December 31,	2013		2012

Reserve for reported losses and loss expenses	$	3,499,817	$	3,272,682
Reserve for losses incurred but not reported	6,082,323		5,786,049
Reserve for losses and loss expenses	$	9,582,140	$	9,058,731

The following table presents a reconciliation of our beginning and ending gross reserve for losses and loss expenses and net reserve for unpaid losses and loss expenses for the periods indicated:




Year ended December 31,	2013			2012			2011

Gross reserve for losses and loss expenses, beginning of period	$	9,058,731		$	8,425,045		$	7,032,375
Less reinsurance recoverable on unpaid losses, beginning of period	(1,825,617		)	(1,736,823		)	(1,540,633		)
Net reserve for unpaid losses and loss expenses, beginning of period	7,233,114			6,688,222			5,491,742

Net incurred losses and loss expenses related to:
Current year	2,353,631			2,340,868			2,932,513
Prior years	(219,436		)	(244,840		)	(257,461		)
	2,134,195			2,096,028			2,675,052
Net paid losses and loss expenses related to:
Current year	(318,006		)	(322,836		)	(509,075		)
Prior years	(1,373,459		)	(1,299,384		)	(953,035		)
	(1,691,465		)	(1,622,220		)	(1,462,110		)

Foreign exchange and other	6,184			71,084			(16,462		)

Net reserve for unpaid losses and loss expenses, end of period	7,682,028			7,233,114			6,688,222
Reinsurance recoverable on unpaid losses, end of period	1,900,112			1,825,617			1,736,823
Gross reserve for losses and loss expenses, end of period	$	9,582,140		$	9,058,731		$	8,425,045

We write business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in our financial results. During 2013, 2012 and 2011, respectively, we recognized aggregate net losses and loss expenses of $201 million, $438 million and $944 million in relation to natural catastrophe and weather-related events.

Prior year reserve development arises from changes to loss and loss expense estimates related to loss events that occurred in previous calendar years. Such development is summarized by segment in the following table:




	Insurance		Reinsurance		Total

Year ended December 31, 2013	$	50,355	$	169,081	$	219,436
Year ended December 31, 2012	122,209		122,631		244,840
Year ended December 31, 2011	103,014		154,447		257,461

Overall, the majority of the net favorable prior year reserve development related to short-tail lines of business. Net favorable prior year reserve development for liability reinsurance also contributed significantly in 2013 with professional lines contributing notably in 2012 and 2011. Favorable development in 2013 was partially offset by adverse development in the insurance professional lines.

The underlying exposures in our property, marine and aviation reserving classes within our insurance segment and the property reserving class within our reinsurance segment largely relate to short-tail business. Development from these classes contributed $162 million, $186 million and $178 million of the total net favorable prior year reserve development in 2013, 2012 and 2011, respectively, and primarily reflected the recognition of better than expected loss emergence.

In the first quarter of 2013, we began to give weight to actuarial methods that reflect our actual experience for liability reinsurance business, as we believe that our older accident years are now at a stage of expected development where such methods will produce meaningful actuarial indications. During 2013, we recognized $85 million of net favorable prior year development, primarily reflecting the greater weight management is giving to experience based indications and our experience which has been favorable for the 2004 through 2008 accident years.

Our professional lines business recognized $29 million of net adverse development in 2013. This increase in the reserves was due to a $51 million adverse development in the insurance segment, reflecting worse than expected loss experience for the 2011-2012 accident years, due to worse than expected loss experience on certain parts of our U.S. D&O business, and the 2008-2009 accident years, due to developments on certain global financial crisis-related claims. Comparably in 2012 and 2011 professional lines contributed net favorable prior year reserve developments of $54 million and $105 million, respectively. The 2012 and 2011 favorable prior year reserve developments were driven by increased weight being given to experience-based actuarial methods in selecting our ultimate loss estimates for accident years 2009 and prior. During 2013, the transition to the experience-based actuarial methods also had a favorable impact on 2009 and prior years, which partially offset the adverse development discussed above.

The frequency and severity of natural catastrophe and weather activity was high in recent years and our December 31, 2013 net reserve for losses and loss expenses continues to include estimated amounts for numerous events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Storm Sandy, the Japanese earthquake and tsunami and the three New Zealand earthquakes, inherently increase the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.