Losses and Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2011

Losses and Loss Adjustment Expenses [Abstract]

LOSSES AND LOSS ADJUSTMENT EXPENSES

8.   LOSSES AND LOSS ADJUSTMENT EXPENSES

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended June 30, 2011 and 2010. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months Ended June 30,
	2011			2010
Balance as at April 1	$	3,394,988		$	2,890,723
Less: total reinsurance reserves recoverable		583,478			435,680
		2,811,510			2,455,043
Effect of exchange rate movement		(1,020	)		(26,454	)
Net reduction in ultimate loss and loss adjustment expense liabilities		(34,315	)		(42,366	)
Net losses paid		(65,208	)		(47,863	)
Retroactive reinsurance contracts assumed		—			134,129
Net balance as at June 30		2,710,967			2,472,489
Plus: total reinsurance reserves recoverable		556,374			421,864
Balance as at June 30	$	3,267,341		$	2,894,353

The following table shows the components of the movement in the net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended June 30, 2011 and 2010:

	Three Months Ended June 30,
	2011			2010
Net losses paid	$	(65,208	)	$	(47,863	)
Net reduction in case and loss adjustment expense reserves		65,074			53,718
Net reduction in IBNR		27,963			29,249
Reduction in estimates of net ultimate losses		27,829			35,104
Reduction in provisions for bad debt		1,672			7,768
Reduction in provisions for unallocated loss adjustment expense liabilities		11,783			11,696
Amortization of fair value adjustments		(6,969	)		(12,202	)
Net reduction in ultimate loss and loss adjustment expense liabilities	$	34,315		$	42,366

Net reduction in case and loss adjustment expense reserves, or LAE reserves, comprises the movement during the quarter in specific case reserve liabilities as a result of claims settlements or changes advised to the Company by its policyholders and attorneys, less changes in case reserves recoverable advised by the Company to its reinsurers as a result of the settlement or movement of assumed claims. Net reduction in IBNR represents the change in the Company’s actuarial estimates of losses incurred but not reported.

The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended June 30, 2011 of $34.3 million was attributable to a reduction in estimates of net ultimate losses of $27.8 million, a reduction in provisions for bad debt of $1.7 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $11.8 million, relating to 2011 run-off activity, partially offset by the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $7.0 million.

The reduction in estimates of net ultimate losses of $27.8 million, comprised of net incurred loss development of $0.1 million and reductions in IBNR reserves of $28.0 million, primarily related to the completion of two commutations of the Company’s largest ten exposures. The reductions in provisions for bad debt of $1.7 million resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.

The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended June 30, 2010 of $42.4 million was attributable to a reduction in estimates of net ultimate losses of $35.1 million, a reduction in provisions for bad debt of $7.8 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $11.7 million, relating to 2010 run-off activity, partially offset by the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $12.2 million.

The reduction in estimates of net ultimate losses of $35.1 million comprised net favorable incurred loss development of $5.9 million along with reductions in IBNR reserves of $29.2 million. Subsequent to June 30, 2010, claims liabilities of certain policyholders within a number of the Company’s insurance and reinsurance subsidiaries were commuted at levels that required the reduction in IBNR reserves for those subsidiaries. The reductions in provisions for bad debt of $7.8 million resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the six months ended June 30, 2011 and 2010. Losses incurred and paid are reflected net of reinsurance recoverables.

	Six Months Ended June 30,
	2011			2010
Balance as at January 1	$	3,291,275		$	2,479,136
Less: total reinsurance reserves recoverable		525,440			347,728
		2,765,835			2,131,408
Effect of exchange rate movement		33,352			(62,429	)
Net reduction in ultimate loss and loss adjustment expense liabilities		(38,387	)		(51,962	)
Net losses paid		(153,339	)		(131,088	)
Acquired on purchase of subsidiaries		10,439			222,042
Retroactive reinsurance contracts assumed		93,067			364,518
Net balance as at June 30		2,710,967			2,472,489
Plus: total reinsurance reserves recoverable		556,374			421,864
Balance as at June 30	$	3,267,341		$	2,894,353

The following table shows the components of the movement in the net reduction in ultimate loss and loss adjustment expense liabilities for the six months ended June 30, 2011 and 2010:

	Six Months Ended June 30,
	2011			2010
Net losses paid	$	(153,339	)	$	(131,088	)
Net reduction in case and LAE reserves		148,504			132,572
Net reduction in IBNR		35,276			35,562
Reduction in estimates of net ultimate losses		30,441			37,046
Reduction in provisions for bad debt		1,672			13,107
Reduction in provisions for unallocated loss adjustment expense liabilities		23,320			20,661
Amortization of fair value adjustments		(17,046	)		(18,852	)
Net reduction in ultimate loss and loss adjustment expense liabilities	$	38,387		$	51,962

The net reduction in ultimate loss and loss adjustment expense liabilities for the six months ended June 30, 2011 of $38.4 million was attributable to a reduction in estimates of net ultimate losses of $30.4 million, a reduction in provisions for bad debt of $1.7 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $23.3 million, relating to 2011 run-off activity, partially offset by the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $17.0 million.

The reduction in estimates of net ultimate losses of $30.4 million, comprised of net incurred loss development of $4.8 million and reductions in IBNR reserves of $35.3 million, primarily related to the completion of two commutations of the Company’s largest ten exposures. The reductions in provisions for bad debt of $1.7 million resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.

The net reduction in ultimate loss and loss adjustment expense liabilities for the six months ended June 30, 2010 of $52.0 million was attributable to a reduction in estimates of net ultimate losses of $37.0 million, a reduction in provisions for bad debt of $13.1 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $20.7 million, relating to 2010 run-off activity, partially offset by the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $18.9 million.

The reduction in estimates of net ultimate losses of $37.0 million comprised net favorable incurred loss development of $1.5 million and reductions in IBNR reserves of $35.6 million. Subsequent to June 30, 2010, claims liabilities of certain policyholders within a number of the Company’s insurance and reinsurance subsidiaries were commuted at levels that required the reduction in IBNR reserves for those subsidiaries. The reductions in provisions for bad debts of $13.1 million resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.