Reserve Roll-Forward

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:




Three months ended March 31,	2017			2016

Gross reserve for losses and loss expenses, beginning of period	$	9,697,827		$	9,646,285
Less reinsurance recoverable on unpaid losses, beginning of period	(2,276,109		)	(2,031,309		)
Net reserve for unpaid losses and loss expenses, beginning of period	7,421,718			7,614,976

Net incurred losses and loss expenses related to:
Current year	631,735			569,356
Prior years	(24,793		)	(70,394		)
	606,942			498,962
Net paid losses and loss expenses related to:
Current year	(31,047		)	(21,740		)
Prior years	(521,478		)	(534,532		)
	(552,525		)	(556,272		)

Foreign exchange and other	36,797			87,420

Net reserve for unpaid losses and loss expenses, end of period	7,512,932			7,645,086
Reinsurance recoverable on unpaid losses, end of period	2,029,031			2,071,401
Gross reserve for losses and loss expenses, end of period	$	9,541,963		$	9,716,487

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 the three months ended March 31, 2017 and 2016, we recognized aggregate net losses and loss expenses, net of reinstatement premiums of $35 million and $14 million, respectively, in relation to catastrophe and weather related events.

The transfer of the insurance business of AXIS Specialty Australia to a reinsurer was approved by the Irish High Court on February 1, 2017 and the Federal Court of Australia on February 10, 2017. Consequently, the insurance policies, assets and liabilities of AXIS Specialty Australia were transferred to the reinsurer with effect from February 13, 2017. This resulted in the reduction of reserves for losses and loss expenses by $223 million and a reduction in reinsurance recoverables on unpaid and paid losses by $223 million.

On March 27, 2017, as part of the wind down of our Australia operation, the Australia Prudential Regulation Authority revoked the authorization of AXIS Specialty Australia to carry on insurance business in Australia. As this resulted in the substantial liquidation of AXIS Specialty Australia, we have released the cumulative translation adjustment related to AXIS Specialty Australia from accumulated other comprehensive income in the Consolidated Balance Sheet to foreign exchange losses in the Consolidated Statement of Operations.

Prior Year Development

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



	Three months ended March 31,
	2017		2016

Insurance	$	8,619	$	2,427
Reinsurance	16,174		67,967
Total	$	24,793	$	70,394

The majority of the net favorable prior year reserve development for the three months ended March 31, 2017 related to medium-tail reserve classes, with additional net favorable prior year reserve development being contributed by our liability reinsurance reserve class, partially offset by net adverse prior year development in our motor reserve class. The majority of net favorable reserve development for the three months ended March 31, 2016 related to short-tail reserve classes with additional net favorable prior year reserve development being contributed by our motor reserve class.

Our short tail business includes the underlying exposures in our property and other, marine and aviation reserve classes within our insurance segment, and the property and other reserve class within our reinsurance segment. Development from these classes contributed $4 million and $48 million of the total net favorable prior year reserve development for the three months ended March 31, 2017 and 2016, respectively, and primarily reflected the recognition of better than expected loss emergence.

Our medium-tail business consists primarily of professional insurance and reinsurance reserve classes, credit and political risk insurance reserve class, and credit and surety reinsurance reserve class. For the three months ended March 31, 2017, the professional reserve classes contributed net favorable prior year reserve development of $23 million. The net favorable prior year reserve development on these reserve classes reflected the generally favorable experience on earlier accident years as we continued to transition to more experience based methods on these years. As our loss experience has generally been better than expected, this resulted in the recognition of net favorable prior year reserve development.

Our long-tail business consists primarily of liability and motor reserve classes. For the three months ended March 31, 2017 and March 31, 2016, the liability reinsurance reserve class contributed net favorable development of $23 million and $6 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. For the three months ended March 31, 2017, our motor reinsurance reserve class recorded net adverse prior year reserve development of $22 million. This adverse development was driven by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. For the three months ended March 31, 2016, our motor reinsurance reserve class contributed $16 million of net favorable prior year reserve development related to favorable loss emergence trends on several classes of business spanning multiple accident years.

Our March 31, 2017 net reserves for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion, inherently increases 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.