Reserve for losses and loss expenses

Reserves for losses and loss expenses are based in part upon the estimation of case reserves from broker, insured and ceding company reported data. The Company also uses statistical and actuarial methods to estimate ultimate expected losses and loss expenses, from which IBNR losses can be calculated. The period of time from the occurrence of a loss to the reporting of a loss to the Company and to the settlement of the Company’s liability may be several months or years. During this period, additional facts and trends may be revealed. As these factors become apparent, reserves will be adjusted, sometimes requiring an increase or decrease in the overall reserves of the Company, and at other times requiring a reallocation of incurred but not reported reserves to specific case reserves. These estimates are reviewed and adjusted regularly, and such adjustments, if any, are reflected in earnings in the period in which they become known. While management believes that it has made a reasonable estimate of ultimate losses, there can be no assurances that ultimate losses and loss expenses will not exceed this estimate.

The following table summarizes the total reserve for losses and loss expenses as at December 31, 2016 and 2015:



	December 31, 2016		December 31, 2015
Case reserves	$	1,237,772	$	1,278,697
IBNR	1,757,423		1,717,870
Total reserve for losses and loss expenses	$	2,995,195	$	2,996,567

The following table represents an analysis of paid and unpaid losses and loss expenses incurred and a reconciliation of the beginning and ending unpaid losses and loss expenses for the years ended December 31, 2016, 2015 and 2014:



	Years Ended December 31,
	2016			2015			2014
Reserve for losses and loss expenses, beginning of year	$	2,996,567		$	3,243,147		$	3,047,933
Loss reserves recoverable	(350,586		)	(377,466		)	(370,154		)
Net reserves for losses and loss expenses, beginning of year	2,645,981			2,865,681			2,677,779
Net reserves acquired	—			—			525,091
Increase (decrease) in net reserves for losses and loss expenses in respect of losses occurring in:
Current year	1,281,289			1,283,970			1,024,256
Prior years ^(a)	(216,192		)	(306,137		)	(259,241		)
Total incurred losses and loss expenses^(a)	1,065,097			977,833			765,015
Less net losses and loss expenses paid in respect of losses occurring in:
Current year	(389,234		)	(326,167		)	(245,084		)
Prior years	(725,168		)	(841,672		)	(818,569		)
Total net paid losses	(1,114,402		)	(1,167,839		)	(1,063,653		)
Foreign exchange gain	(31,902		)	(29,694		)	(38,551		)
Net reserve for losses and loss expenses, end of year	2,564,774			2,645,981			2,865,681
Loss reserves recoverable	430,421			350,586			377,466
Reserve for losses and loss expenses, end of year	$	2,995,195		$	2,996,567		$	3,243,147

Incurred losses and loss expenses comprise:



	Years Ended December 31,
	2016			2015			2014
Gross losses and loss expenses^(a)	$	1,257,054		$	1,083,695		$	826,826
Reinsurance balances recoverable	(191,957		)	(105,862		)	(61,811		)
Net incurred losses and loss expenses ^(a)	$	1,065,097		$	977,833		$	765,015


(a)	Upon closing the acquisition of Western World, an adjustment of $15,586 was made to increase net reserves to reflect fair value. This adjustment was fully amortized to income through a reduction in losses and loss expenses of $10,979 and $4,607 during the years ended December 31, 2015 and 2014, respectively.

The net favorable development on prior accident years by segment and line of business for the years ended December 31, 2016, 2015 and 2014 was as follows:



	Year Ended December 31, 2016
	Property			Marine			Specialty			Liability			Total
Validus Re	$	(57,888	)	$	(24,435	)	$	(36,210	)	$	—		$	(118,533	)
Talbot	(38,368		)	(11,738		)	(35,704		)	—			(85,810		)
Western World	(2,701		)	—			—			(6,411		)	(9,112		)
AlphaCat	(1,858		)	—			(879		)	—			(2,737		)
Net favorable development	$	(100,815	)	$	(36,173	)	$	(72,793	)	$	(6,411	)	$	(216,192	)

The Validus Re segment experienced favorable development on prior accident years primarily due to favorable development on attritional losses along with favorable development on the 2015 Chilean Earthquake and 2015 Tianjin port explosion loss events partially offset by adverse development on events in the marine lines primarily related to receipt of a loss advice on an individual marine policy that incepted during the second half of 2015. The Talbot segment experienced favorable development on prior accident years primarily due to favorable development on attritional losses partially offset by adverse development on events in the marine lines primarily related to receipt of a loss advice on an individual marine policy that incepted during the second half of 2015. The Western World segment experienced favorable development on prior accident years principally due to favorable development on attritional losses.



	Year Ended December 31, 2015
	Property			Marine			Specialty			Liability			Total ^(a)
Validus Re	$	(70,343	)	$	(39,460	)	$	(18,813	)	$	—		$	(128,616	)
Talbot	(52,393		)	(63,920		)	(30,044		)	—			(146,357		)
Western World ^(a)	(6,045		)	—			—			(16,922		)	(22,967		)
AlphaCat	(8,197		)	—			—			—			(8,197		)
Net favorable development ^(a)	$	(136,978	)	$	(103,380	)	$	(48,857	)	$	(16,922	)	$	(306,137	)

The Validus Re segment experienced favorable development on prior accident years primarily due to favorable development on Superstorm Sandy, a 2012 loss event, and attritional losses. The Talbot segment experienced favorable development on prior accident years primarily due to favorable development on attritional losses and certain events, including the Thailand floods, which was a 2011 loss event. The Western World segment experienced favorable development on prior accident years primarily due to the amortization of the fair value adjustment made at the acquisition date as well as favorable development on attritional losses.



	Year Ended December 31, 2014
	Property			Marine			Specialty			Liability			Total
Validus Re	$	(76,064	)	$	(6,830	)	$	(4,706	)	$	—		$	(87,600	)
Talbot	(53,779		)	(31,397		)	(55,990		)	—			(141,166		)
Western World ^(a)	1,023			—			—			(12,263		)	(11,240		)
AlphaCat	(19,235		)	—			—			—			(19,235		)
Net favorable development ^(a)	$	(148,055	)	$	(38,227	)	$	(60,696	)	$	(12,263	)	$	(259,241	)


(a)	Upon closing the acquisition of Western World, an adjustment of $15,586 was made to increase net reserves to reflect fair value. This adjustment was fully amortized to income through a reduction in losses and loss expenses of $10,979 and $4,607 during the years ended December 31, 2015 and 2014, respectively.

The Validus Re segment experienced favorable development on prior accident years primarily due to favorable development on attritional losses and the European Floods, Superstorm Sandy and Gryphon Alpha mooring failure loss events, partially offset by adverse development on the Costa Concordia loss event. The Talbot segment experienced favorable development on prior accident years primarily due to favorable development on attritional losses and loss events, primarily the Tohoku earthquake, which was a 2011 loss event. The Western World segment experienced favorable development on prior accident years primarily due to the amortization of the fair value adjustment made at the acquisition date as well as favorable development on attritional losses. The AlphaCat segment experienced favorable development on prior accident years primarily due to the partial release of a 2013 aggregate excess of loss contract.

Short Duration Contract Disclosures

During the year, the Company adopted ASU 2015-09 and has included the required disclosures below. Refer to Note 4, “Recent Accounting Pronouncements,” for further information.

The Company has disaggregated its information presented in the tables below by line of business as appropriate for each of the Validus Re, Talbot and Western World segments. The Company has not prepared loss development tables for the AlphaCat segment as its reserves for losses and loss expenses as at December 31, 2016 of $48,534 are not significant (1.9% of total net reserves) and therefore, presenting this information would not be meaningful. Reserves for the AlphaCat segment have been included as a reconciling item within the reconciliation of loss development information to the Company’s reserves for losses and loss expenses.

The Company has presented the below development tables for all accident years shown using exchange rates as at December 31, 2016. All accident years prior to the current year have been restated and presented using the current year exchange rate.


(a)	Loss Development Tables

(i) Validus Re

The Validus Re loss development tables have been produced by line of business for accident years 2012 through to 2016. The Company determined that it was impracticable to produce IBNR by accident year by lines of business for years prior to 2012 as the necessary data in original currency was not readily available. In addition, Validus Re provides treaty reinsurance products on a global basis for all of its lines of business and does not receive or maintain claims count information associated with its reserved claims. As such, the Company has determined that it is impracticable to provide this information.

The net reserves for losses and loss expenses related to the acquisitions of IPC Holdings Ltd. (“IPC”) acquired on September 4, 2009, and Flagstone Reinsurance Holdings, S.A. (“Flagstone”), acquired on November 30, 2012, have been incorporated in Validus Re’s reserves for losses and loss expenses on a prospective basis. IPC and Flagstone were put into run-off as at the acquisition date of each. The prospective treatment for the acquisition of Flagstone was adopted primarily as a result of the data necessary to produce the loss development tables by accident year and by lines of business not being migrated over on acquisition as it was not requested or received and as a result does not exist within Validus Re’s data systems.



Validus Re - Property
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	397,635	$	321,956	$	309,344	$	282,517	$	280,411	$	19,108	n/a
2013			174,722		156,233		141,203		132,830		7,233		n/a
2014					108,206		102,273		95,392		6,757		n/a
2015							154,923		118,484		41,177		n/a
2016									149,263		86,564		n/a
							Total		$	776,380

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	67,004		149,433		202,141		225,518		234,256
2013			17,325		63,974		101,158		114,263
2014					25,346		63,415		78,509
2015							16,029		57,882
2016									26,522
							Total		$	511,432

Reserves for losses and loss expenses, before 2012, net of reinsurance ^(a)									$	154,539
	Reserves for losses and loss expenses, net of reinsurance								$	419,487


(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $77,790 and $10,614 related to Flagstone and IPC, respectively.



Validus Re - Marine
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	195,163	$	226,817	$	225,131	$	218,734	$	216,673	$	19,725	n/a
2013			76,776		74,022		63,630		61,210		7,347		n/a
2014					63,732		42,991		35,910		7,418		n/a
2015							129,864		119,490		55,557		n/a
2016									68,531		49,619		n/a
							Total		$	501,814

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	11,356		94,052		148,628		169,420		178,172
2013			11,784		28,996		39,493		44,512
2014					7,013		11,749		17,383
2015							3,723		16,180
2016									8,801
							Total		$	265,048

Reserves for losses and loss expenses, before 2012, net of reinsurance ^(a)									$	64,750
	Reserves for losses and loss expenses, net of reinsurance								$	301,516


(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $15,178 and $1,537 related to Flagstone and IPC, respectively.



Validus Re - Specialty
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	53,798	$	54,573	$	49,263	$	47,428	$	46,626	$	733	n/a
2013			182,297		190,470		178,736		174,219		1,974		n/a
2014					213,911		208,508		200,649		8,372		n/a
2015							296,554		279,766		32,236		n/a
2016									295,872		128,761		n/a
							Total		$	997,132

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	$	17,716	$	41,156	$	44,037	$	44,942	$	45,332
2013			99,340		157,688		164,366		166,814
2014					95,765		162,056		176,202
2015							177,776		235,819
2016									149,502
							Total		$	773,669

Reserves for losses and loss expenses, before 2012, net of reinsurance ^(a)									$	67,909
	Reserves for losses and loss expenses, net of reinsurance								$	291,372


(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $41,091 and $5,743 related to Flagstone and IPC, respectively.

(ii) Talbot

The Talbot loss development tables have been produced by line of business for accident years 2012 through to 2016. The Company determined that it was impracticable to produce IBNR by accident year for years prior to 2012 as the Company did not record this data for years prior to 2012 and as such, did not allocate IBNR by line of business for these years. Talbot writes treaty reinsurance business along with business through binders and lineslips and for this business the Company does not receive or maintain claims count information associated with its reserved losses therefore, the Company has determined that it is impracticable to provide claims count information.



Talbot - Property
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	135,923	$	112,488	$	100,748	$	101,387	$	100,773	$	2,413	n/a
2013			118,167		96,814		83,426		81,004		605		n/a
2014					147,259		121,260		114,852		5,528		n/a
2015							138,087		109,608		12,696		n/a
2016									177,771		76,755		n/a
							Total		$	584,008

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	$	13,051	$	61,490	$	83,824	$	88,150	$	92,512
2013			12,813		48,231		67,328		73,267
2014					21,249		74,493		95,945
2015							24,537		63,437
2016									37,880
							Total		$	363,041

Reserves for losses and loss expenses, before 2012, net of reinsurance									$	12,180
	Reserves for losses and loss expenses, net of reinsurance								$	233,147



Talbot - Marine
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	208,883	$	203,855	$	186,278	$	182,283	$	178,839	$	5,154	n/a
2013			189,091		188,991		168,203		161,839		11,372		n/a
2014					180,401		155,361		154,105		13,671		n/a
2015							187,790		192,818		54,285		n/a
2016									159,153		89,536		n/a
							Total		$	846,754

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	$	36,491	$	105,600	$	136,335	$	153,550	$	157,475
2013			38,416		88,494		112,781		125,037
2014					24,433		74,547		102,788
2015							25,300		73,957
2016									35,105
							Total		$	494,362

Reserves for losses and loss expenses, before 2012, net of reinsurance									$	44,753
	Reserves for losses and loss expenses, net of reinsurance								$	397,145



Talbot - Specialty
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,										December 31, 2016
Accident Year	2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<-------------------------- Unaudited --------------------------->
2012	$	151,306	$	132,735	$	122,760	$	120,621	$	118,869	$	5,886	n/a
2013			166,450		145,905		132,797		124,208		8,724		n/a
2014					215,960		214,962		198,653		39,248		n/a
2015							152,907		149,031		39,447		n/a
2016									166,604		105,142		n/a
							Total		$	757,365

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016
	<-------------------------- Unaudited --------------------------->
2012	$	25,591	$	57,906	$	83,201	$	87,753	$	105,888
2013			42,325		77,428		91,940		100,213
2014					41,183		107,882		135,526
2015							35,724		85,397
2016									33,468
							Total		$	460,492

Reserves for losses and loss expenses, before 2012, net of reinsurance									$	45,486
	Reserves for losses and loss expenses, net of reinsurance								$	342,359

(iii) Western World

The Western World loss development tables have been produced by line of business for accident years 2007 through to 2016. The Company has accumulated claims count information by accident year for Western World. The Company’s methodology for determining reported claims count information is on a per claims basis by accident year and is inclusive of claims that are open, closed with payment and closed without payment.



Western World - Property
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,																				December 31, 2016
Accident Year	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<------------------------------------------------- Unaudited -------------------------------------------------->
2007	$	8,520	$	8,161	$	8,218	$	8,209	$	8,209	$	8,206	$	8,206	$	8,207	$	8,207	$	8,207	$	—	841
2008			12,094		11,615		11,805		11,762		11,729		11,721		11,724		11,724		11,724		—		412
2009					10,300		10,005		10,039		10,034		10,060		10,060		10,060		10,060		—		784
2010							11,846		11,573		11,507		11,414		11,448		11,438		11,332		—		974
2011									12,588		12,223		12,000		12,134		12,012		12,021		—		1,238
2012											15,506		15,491		15,594		15,556		15,522		—		1,680
2013													21,825		23,561		23,659		23,599		—		1,950
2014															35,612		29,282		28,619		103		2,393
2015																	27,879		26,002		135		1,788
2016																			46,636		9,324		1,587
																	Total		$	193,722

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
	<------------------------------------------------- Unaudited -------------------------------------------------->
2007	$	5,418	$	7,968	$	8,192	$	8,206	$	8,206	$	8,206	$	8,206	$	8,207	$	8,207	$	8,207
2008			8,895		11,288		11,672		11,747		11,714		11,721		11,724		11,724		11,724
2009					8,096		9,948		9,942		10,003		10,060		10,060		10,060		10,060
2010							8,563		10,521		10,905		10,854		10,882		10,903		11,287
2011									9,797		12,000		11,976		12,027		12,009		12,021
2012											11,166		14,838		15,435		15,513		15,522
2013													15,568		22,647		23,104		23,561
2014															21,913		27,211		27,606
2015																	18,981		25,302
2016																			29,666
																	Total		$	174,956

	Reserves for losses and loss expenses, before 2007, net of reinsurance																		$	—
	Reserves for losses and loss expenses, net of reinsurance																		$	18,766



Western World - Liability
	Incurred Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,																				December 31, 2016
Accident Year	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		Total of IBNR Reserves Plus Expected Development on Reported Losses		Cumulative Reported Claims Count
	<------------------------------------------------- Unaudited -------------------------------------------------->
2007	$	164,717	$	162,239	$	160,117	$	158,478	$	154,499	$	152,163	$	149,994	$	107,894	$	107,350	$	106,342	$	1,981	$	4.727
2008			135,009		135,280		135,330		133,088		131,006		129,559		102,424		102,070		101,478		2,075		4,950
2009					116,474		116,780		116,990		116,463		116,327		98,261		96,235		95,266		2,173		3,955
2010							101,223		108,823		111,675		112,072		105,400		106,066		103,973		3,877		4,205
2011									101,091		107,741		107,827		109,412		109,183		108,301		4,627		4,372
2012											108,981		111,283		133,990		132,562		127,486		9,410		4,649
2013													132,077		165,233		164,428		158,329		17,049		5,990
2014															197,022		197,388		203,592		44,988		7,469
2015																	154,184		158,591		76,092		5,152
2016																			133,303		104,906		3,156
																	Total		$	1,296,661

	Cumulative Paid Losses and Loss Expenses, Net of Reinsurance
	Years Ended December 31,
Accident Year	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
	<------------------------------------------------- Unaudited -------------------------------------------------->
2007	$	10,723	$	30,741	$	58,358	$	80,218	$	91,020	$	96,658	$	99,978	$	102,600	$	103,961	$	104,038
2008			8,654		28,467		51,165		71,239		82,661		89,433		93,563		95,773		97,475
2009					10,023		30,131		48,255		65,009		77,895		85,644		89,688		90,415
2010							8,215		28,393		51,765		71,430		84,320		92,889		96,309
2011									7,331		27,438		50,197		75,000		88,415		96,780
2012											8,823		31,291		65,437		92,499		108,409
2013													10,159		41,782		77,776		108,613
2014															16,468		52,543		98,848
2015																	12,662		39,598
2016																			9,873
																	Total		$	850,358

	Reserves for losses and loss expenses, before 2007, net of reinsurance																		$	8,944
	Reserves for losses and loss expenses, net of reinsurance																		$	455,247


(b)	Reconciliation of Loss Development Information to the Reserves for Losses and Loss Expenses

The table below reconciles the loss development information to the Company’s reserves for losses and loss expenses as at December 31, 2016:



	December 31, 2016
Reserves for losses and loss expenses, net of reinsurance
Validus Re - Property	$	419,487
Validus Re - Marine	301,516
Validus Re - Specialty	291,372
Talbot - Property	233,147
Talbot - Marine	397,145
Talbot - Specialty	342,359
Western World - Property	18,766
Western World - Liability	455,247
Total reserves for losses and loss expenses, net of reinsurance	2,459,039

Loss reserves recoverable
Validus Re - Property	42,873
Validus Re - Marine	52,970
Validus Re - Specialty	2,162
Talbot - Property	93,774
Talbot - Marine	125,677
Talbot - Specialty	86,587
Western World - Property	187
Western World - Liability	87,300
Elimination - Intercompany	(61,109		)
Total loss reserves recoverable	430,421

Unallocated loss adjustment expenses	51,990
Provisions for uncollectible reinsurance	5,153
Reserves for losses and loss expenses - AlphaCat segment	48,534
Other	58
Total reserves for losses and loss expenses	$	2,995,195


(c)	Historical Loss Duration

The below table summarizes the historic average annual percentage payout of incurred losses by age, net of reinsurance, as of December 31, 2016:



	Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
	December 31, 2016
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Validus Re - Property	19.0	%	34.9	%	20.9	%	9.1	%	3.1	%	n/a		n/a		n/a		n/a		n/a
Validus Re - Marine	12.0	%	22.5	%	19.3	%	8.9	%	4.0	%	n/a		n/a		n/a		n/a		n/a
Validus Re - Specialty	51.4	%	34.4	%	5.7	%	1.7	%	0.8	%	n/a		n/a		n/a		n/a		n/a
Talbot - Property	18.2	%	43.4	%	21.5	%	5.8	%	4.3	%	n/a		n/a		n/a		n/a		n/a
Talbot - Marine	19.0	%	31.8	%	16.8	%	8.6	%	2.2	%	n/a		n/a		n/a		n/a		n/a
Talbot - Specialty	24.1	%	30.6	%	15.6	%	5.2	%	15.3	%	n/a		n/a		n/a		n/a		n/a
Western World - Property	73.1	%	22.4	%	2.0	%	0.5	%	0.1	%	0.1	%	0.9	%	—	%	—	%	—	%
Western World - Liability	8.1	%	18.9	%	22.9	%	20.1	%	12.0	%	7.2	%	3.7	%	1.8	%	1.5	%	0.1	%