LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for losses and LAE includes an amount determined from reported claims and an amount based on historical loss experience and industry statistics for IBNR using a variety of actuarial methods. Our loss reserves cover multiple lines of business, which include workers' compensation, general casualty, asbestos and environmental, marine, aviation and transit, construction defects and other non-life lines of business.

The reserves for unpaid reported losses and LAE are established by management based on reports from brokers, ceding companies and insureds and represents the estimated ultimate cost of events or conditions that have been reported to, or specifically identified by us. IBNR reserves are established by management based on actuarially determined estimates of ultimate losses and loss expenses. Inherent in the estimate of ultimate losses and LAE are expected trends in claim severity and frequency and other factors which may vary significantly as claims are settled. Accordingly, ultimate losses and LAE may differ materially from the amounts recorded in the consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, will be recorded in earnings in the period in which they become known. Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves established in previous calendar years.

The following table summarizes the liability for losses and LAE by segment as at December 31, 2015 and 2014:



	2015											2014
	Non-life Run-off			Atrium		StarStone			Total			Non-life Run-off			Atrium		StarStone			Total
Outstanding losses	$	2,757,774		$	68,913	$	457,175		$	3,283,862		$	2,202,187		$	73,803	$	387,171		$	2,663,161
IBNR	1,991,009			115,613		477,990			2,584,612			1,406,420			113,149		477,264			1,996,833
Fair value adjustments	(163,329		)	16,491		(1,487		)	(148,325		)	(173,597		)	25,659		(2,635		)	(150,573		)
Total	$	4,585,454		$	201,017	$	933,678		$	5,720,149		$	3,435,010		$	212,611	$	861,800		$	4,509,421

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years ended December 31, 2015, 2014 and 2013:



	2015			2014			2013
Balance as at January 1	$	4,509,421		$	4,219,905		$	3,650,127
Less: reinsurance reserves recoverable	1,154,196			1,146,588			876,220
Net balance as at January 1	3,355,225			3,073,317			2,773,907
Net incurred losses and LAE:
Current period	476,364			327,817			93,442
Prior periods	(372,031		)	(318,671		)	(257,114		)
Total net incurred losses and LAE	104,333			9,146			(163,672		)
Net paid losses:
Current period	(99,933		)	(166,796		)	(41,282		)
Prior periods	(681,956		)	(420,715		)	(360,214		)
Total net paid losses	(781,889		)	(587,511		)	(401,496		)
Effect of exchange rate movement	(65,069		)	(69,804		)	6,222
Acquired on purchase of subsidiaries	878,815			901,447			757,850
Assumed business	612,441			28,630			100,506
Net balance as at December 31	4,103,856			3,355,225			3,073,317
Plus: reinsurance reserves recoverable	1,360,382			1,154,196			1,146,588
Plus: deferred charge on retroactive reinsurance	255,911			—			—
Balance as at December 31	$	5,720,149		$	4,509,421		$	4,219,905

The tables below provide the net incurred losses and LAE in the Non-life Run-off, Atrium and StarStone segments for the years ended December 31, 2015, 2014 and 2013:



	Year Ended December 31, 2015
	Non-life Run-off			Atrium			StarStone			Total
Net losses paid	$	517,295		$	52,035		$	212,559		$	781,889
Net change in case and LAE reserves	(355,335		)	(709		)	77,219			(278,825		)
Net change in IBNR reserves	(364,774		)	2,844			37,904			(324,026		)
Increase (reduction) in estimates of net ultimate losses	(202,814		)	54,170			327,682			179,038
Reduction in provisions for bad debt	(25,271		)	—			—			(25,271		)
Increase (reduction) in provisions for unallocated LAE	(62,653		)	(83		)	3,537			(59,199		)
Amortization of fair value adjustments	19,908			(6,608		)	(3,535		)	9,765
Net incurred losses and LAE	$	(270,830	)	$	47,479		$	327,684		$	104,333



	Year Ended December 31, 2014
	Non-life Run-off			Atrium			StarStone			Total
Net losses paid	$	400,096		$	57,611		$	129,804		$	587,511
Net change in case and LAE reserves	(310,414		)	(2,684		)	37,604			(275,494		)
Net change in IBNR reserves	(301,784		)	11,557			58,870			(231,357		)
Increase (reduction) in estimates of net ultimate losses	(212,102		)	66,484			226,278			80,660
Reduction in provisions for bad debt	(7,700		)	—			—			(7,700		)
Increase (reduction) in provisions for unallocated LAE	(48,891		)	9			(5,088		)	(53,970		)
Amortization of fair value adjustments	3,982			(11,065		)	(2,761		)	(9,844		)
Net incurred losses and LAE	$	(264,711	)	$	55,428		$	218,429		$	9,146



	Year Ended December 31, 2013
	Non-life Run-off			Atrium			StarStone		Total
Net losses paid	$	370,870		$	30,626		$	—	$	401,496
Net change in case and LAE reserves	(280,933		)	(9,621		)	—		(290,554		)
Net change in IBNR reserves	(231,278		)	(1,653		)	—		(232,931		)
Increase (reduction) in estimates of net ultimate losses	(141,341		)	19,352			—		(121,989		)
Increase in provisions for bad debt	1,999			—			—		1,999
Reduction in provisions for unallocated LAE	(49,580		)	(49		)	—		(49,629		)
Amortization of fair value adjustments	5,947			—			—		5,947
Net incurred losses and LAE	$	(182,975	)	$	19,303		$	—	$	(163,672	)

Non-Life Run-off Segment

The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the years ended December 31, 2015, 2014 and 2013 for the Non-life Run-off segment:



	2015			2014			2013
Balance as at January 1	$	3,435,010		$	4,004,513		$	3,650,127
Less: reinsurance reserves recoverable	800,709			1,121,533			876,220
Net balance as at January 1	2,634,301			2,882,980			2,773,907
Net incurred losses and LAE:
Current period	39,924			24,235			74,139
Prior periods	(310,754		)	(288,946		)	(257,114		)
Total net incurred losses and LAE	(270,830		)	(264,711		)	(182,975		)
Net paid losses:
Current period	(16,049		)	(87,681		)	(10,656		)
Prior periods	(501,246		)	(312,415		)	(360,214		)
Total net paid losses	(517,295		)	(400,096		)	(370,870		)
Effect of exchange rate movement	(42,636		)	(49,267		)	4,936
Acquired on purchase of subsidiaries	878,815			436,765			557,476
Assumed business	612,441			28,630			100,506
Net balance as at December 31	3,294,796			2,634,301			2,882,980
Plus: reinsurance reserves recoverable	1,034,747			800,709			1,121,533
Plus: deferred charge on retroactive reinsurance	255,911			—			—
Balance as at December 31	$	4,585,454		$	3,435,010		$	4,004,513

Net incurred losses and LAE in the Non-life Run-off segment for the years ended December 31, 2015, 2014 and 2013 were as follows:



	2015								2014									2013
	Prior Period			Current Period		Total			Prior Period			Current Period			Total			Prior Period			Current Period		Total
Net losses paid	$	501,246		$	16,049	$	517,295		$	312,415		$	87,681		$	400,096		$	360,214		$	10,656	$	370,870
Net change in case and LAE reserves	(366,262		)	10,927		(355,335		)	(285,814		)	(24,600		)	(310,414		)	(310,488		)	29,555		(280,933		)
Net change in IBNR reserves	(377,722		)	12,948		(364,774		)	(262,384		)	(39,400		)	(301,784		)	(265,206		)	33,928		(231,278		)
Increase (reduction) in estimates of net ultimate losses	(242,738		)	39,924		(202,814		)	(235,783		)	23,681			(212,102		)	(215,480		)	74,139		(141,341		)
Increase (reduction) in provisions for bad debt	(25,271		)	—		(25,271		)	(7,700		)	—			(7,700		)	1,999			—		1,999
Increase (reduction) in provisions for unallocated LAE	(62,653		)	—		(62,653		)	(49,445		)	554			(48,891		)	(49,580		)	—		(49,580		)
Amortization of fair value adjustments	19,908			—		19,908			3,982			—			3,982			5,947			—		5,947
Net incurred losses and LAE	$	(310,754	)	$	39,924	$	(270,830	)	$	(288,946	)	$	24,235		$	(264,711	)	$	(257,114	)	$	74,139	$	(182,975	)

Net change in case and LAE reserves comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

Year Ended December 31, 2015

The net reduction in incurred losses and LAE for the year ended December 31, 2015 of $270.8 million included net incurred losses and LAE of $39.9 million related to current period net earned premium of $43.3 million (primarily for the portion of the run-off business acquired with Sussex). Excluding current period net incurred losses and LAE of $39.9 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $310.8 million, which was attributable to a reduction in estimates of net ultimate losses of $242.7 million, a reduction in provisions for bad debt of $25.3 million and a reduction in provisions for unallocated LAE of $62.7 million, relating to 2015 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $19.9 million.

The reduction in estimates of net ultimate losses relating to prior periods of $242.7 million comprised reductions in IBNR reserves of $377.7 million partially offset by net incurred loss development of $135.0 million. The decrease in the estimate of net IBNR reserves of $377.7 million (compared to $262.4 million during the year ended December 31, 2014), was comprised of $32.0 million relating to asbestos liabilities (compared to $59.4 million in 2014), $1.6 million relating to environmental liabilities (compared to $6.2 million in 2014), $3.0 million relating to general casualty liabilities (compared to $62.5 million in 2014), $243.4 million relating to workers' compensation liabilities (compared to $63.6 million in 2014) and $97.7 million relating to all other remaining liabilities (compared to $70.7 million in 2014).

The reduction in net IBNR reserves of $377.7 million relating to prior periods was a result of the application, on a basis consistent with the assumptions applied in the prior period, of the our actuarial methodologies to revised historical loss development data, following 79 commutations and policy buy-backs, to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures. The prior period estimate of net IBNR reserves was reduced as a result of the combined impact on all classes of business of loss development activity during 2015, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts. The net incurred loss development resulting from settlement of net advised case and LAE reserves of $366.3 million for net paid losses of $501.2 million, related to the settlement of non-commuted losses in the year and 79 commutations and policy buy-backs of assumed and ceded exposures (including the partial commutation of one of our top ten ceded recoverables as at January 1, 2015). Net advised case and LAE reserves settled by way of commutation and policy buyback during the year ended December 31, 2015 amounted to $56.6 million (comprising $140.3 million of ceded incurred reinsurance recoverable case reserves partially offset by $83.7 million of assumed case reserves and LAE reserves).

The reduction in provisions for bad debt of $25.3 million was a result of the collection of certain reinsurance recoverables against which bad debt provisions had been provided in earlier periods, and the reduction in bad debt provisions for insolvent reinsurers as a result of dividends received, partially offset by additional provisions for contractual disputes with reinsurers.

Year Ended December 31, 2014

The net reduction in incurred losses and LAE for the year ended December 31, 2014 of $264.7 million included current period net incurred losses and LAE of $24.2 million related to current period net earned premium of $31.2 million (primarily for the portion of the run-off business acquired with StarStone). Excluding current period net losses and LAE of $24.2 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $288.9 million, which was attributable to a reduction in estimates of net ultimate losses of $235.8 million, reduction in provisions for bad debts of $7.7 million and a reduction in provision for unallocated LAE of $49.5 million, relating to 2014 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $4.0 million.

The reduction in estimates of net ultimate losses relating to prior periods of $235.8 million comprised reductions in IBNR reserves of $262.4 million partially offset by net incurred loss development of $26.6 million. The decrease in the estimate of net IBNR reserves of $262.4 million (compared to $265.2 million during the year ended December 31, 2013), was comprised of $59.4 million relating to asbestos liabilities (compared to $69.8 million in 2013), $6.2 million relating to environmental liabilities (compared to $4.9 million in 2013), $62.5 million relating to general casualty liabilities (compared to $42.6 million in 2013), $63.6 million relating to workers' compensation liabilities (compared to $42.1 million in 2013) and $70.7 million relating to all other remaining liabilities (compared to $105.8 million in 2013).

The reduction in net IBNR reserves of $262.4 million relating to prior periods was a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to revised historical loss development data, following 98 commutations and policy buy-backs, to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures. The prior period estimate of net IBNR reserves was reduced as a result of the combined impact on all classes of business of loss development activity during 2014, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts. The net incurred loss development resulting from settlement of net advised case and LAE reserves of $285.8 million for net paid losses of $312.4 million related to the settlement of non-commuted losses in the year and 98 commutations and policy buy-backs of assumed and ceded exposures (including the commutation of two of our top ten assumed exposures and two of our top ten ceded recoverables as at January 1, 2014). Net advised case and LAE reserves settled by way of commutation and policy buy-back during the year ended December 31, 2014 amounted to $29.1 million (comprising $99.5 million of assumed case reserves and LAE reserves partially offset by $70.4 million of ceded incurred reinsurance recoverable case reserves).

The reduction in provisions for bad debts of $7.7 million was a result of the collection of certain reinsurance recoverables against which bad debt provisions had been provided in earlier periods.

Year Ended December 31, 2013

The net reduction in incurred losses and LAE for the year ended December 31, 2013 of $183.0 million included current period incurred losses of $74.1 million related to SeaBright. Excluding SeaBright's current period net incurred losses and LAE of $74.1 million, net incurred losses and LAE relating to prior periods were reduced by $257.1 million, which was attributable to a reduction in estimates of net ultimate losses of $215.5 million and a reduction in provisions for unallocated LAE of $49.6 million, relating to 2013 run-off activity, partially offset by an increase in provisions for bad debt of $2.0 million and the amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $5.9 million.

The reduction in estimates of net ultimate losses relating to prior periods of $215.5 million comprised reductions in net IBNR reserves of $265.2 million partially offset by net incurred loss development of $49.7 million. The decrease in the estimate of net IBNR reserves of $265.2 million (compared to $267.4 million during the year ended December 31, 2012) was comprised of $69.8 million relating to asbestos liabilities (compared to $36.4 million in 2012), $4.9 million relating to environmental liabilities (compared to $2.6 million in 2012), $42.6 million relating to general casualty liabilities (compared to $96.3 million in 2012), $42.1 million relating to workers' compensation liabilities (compared to $52.7 million in 2012) and $105.8 million relating to all other remaining liabilities (compared to $79.4 million in 2012).

The reduction in net IBNR reserves of $265.2 million relating to prior periods was a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to revised historical loss development data, following 108 commutations and policy buy-backs, to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures. The prior period estimate of net IBNR reserves was reduced as a result of the combined impact on all classes of business of loss development activity during 2013, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts. The net incurred loss development resulting from settlement of net advised case and LAE reserves of $310.5 million for net paid losses of $360.2 million related to the settlement of non-commuted losses in the year and 108 commutations and policy buy-backs of assumed and ceded exposures (including the commutation of one of our top ten assumed exposures and one of our top ten ceded recoverables as at January 1, 2013). Net advised case and LAE reserves settled by way of commutation and policy buy-back during the year ended December 31, 2013 amounted to $29.8 million (comprising $97.3 million of assumed case reserves and LAE reserves partially offset by $67.5 million of ceded incurred reinsurance recoverable case reserves).

The increase in provisions for bad debt of $2.0 million was a result of additional provisions being allowed for contractual disputes with reinsurers, offset by cash collections and commutations on certain reinsurance recoverables against which bad debt provisions had been provided in earlier periods.

Asbestos and Environmental

In establishing the reserves for losses and LAE related to asbestos and environmental claims, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, reserves have been established to cover additional exposures on both known and unreported claims. Estimates of the reserves are reviewed and updated continually. Developed case law and adequate claim history do not exist for such claims, especially because significant uncertainty exists about the outcome of coverage litigation and whether past claim experience will be representative of future claim experience. In view of the changes in the legal and tort environment that affect the development of such claims, the uncertainties inherent in valuing asbestos and environmental claims are not likely to be resolved in the near future. Ultimate values for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the amount of our potential losses for these claims. There can be no assurance that the reserves established by us will be adequate or will not be adversely affected by the development of other latent exposures. The liability for unpaid losses and LAE as of December 31, 2015 and 2014 included $356.6 million and $389.1 million, respectively, which represented an estimate of the net ultimate liability for asbestos and environmental claims. The gross liability for such claims as at December 31, 2015 and 2014 was $390.8 million and $439.5 million, respectively.

Atrium

Atrium was acquired in the fourth quarter of 2013. The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years ended December 31, 2015, 2014 and 2013:



	2015			2014			2013
Balance as at January 1	$	212,611		$	215,392		$	—
Less: reinsurance reserves recoverable	28,278			25,055			—
Net balance as at January 1	184,333			190,337			—
Net incurred losses and LAE:
Current period	69,400			74,094			19,303
Prior periods	(21,921		)	(18,666		)	—
Total net incurred losses and LAE	47,479			55,428			19,303
Net paid losses:
Current period	(21,145		)	(29,626		)	(30,626		)
Prior periods	(30,890		)	(27,985		)	—
Total net paid losses	(52,035		)	(57,611		)	(30,626		)
Effect of exchange rate movement	(4,612		)	(3,821		)	1,286
Acquired on purchase of subsidiaries	—			—			200,374
Net balance as at December 31	175,165			184,333			190,337
Plus: reinsurance reserves recoverable	25,852			28,278			25,055
Balance as at December 31	$	201,017		$	212,611		$	215,392

Net Incurred losses and LAE in the Atrium segment for the years ended December 31, 2015, 2014 and 2013 were as follows:



	2015								2014								2013
	Prior Period			Current Period		Total			Prior Period			Current Period		Total			Prior Period		Current Period			Total
Net losses paid	$	30,890		$	21,145	$	52,035		$	27,985		$	29,626	$	57,611		$	—	$	30,626		$	30,626
Net change in case and LAE reserves	(18,213		)	17,504		(709		)	(16,986		)	14,302		(2,684		)	—		(9,621		)	(9,621		)
Net change in IBNR reserves	(27,382		)	30,226		2,844			(18,114		)	29,671		11,557			—		(1,653		)	(1,653		)
Increase (reduction) in estimates of net ultimate losses	(14,705		)	68,875		54,170			(7,115		)	73,599		66,484			—		19,352			19,352
Increase (reduction) in provisions for unallocated LAE	(608		)	525		(83		)	(486		)	495		9			—		(49		)	(49		)
Amortization of fair value adjustments	(6,608		)	—		(6,608		)	(11,065		)	—		(11,065		)	—		—			—
Net incurred losses and LAE	$	(21,921	)	$	69,400	$	47,479		$	(18,666	)	$	74,094	$	55,428		$	—	$	19,303		$	19,303

StarStone

StarStone was acquired in the second quarter of 2014. The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years ended December 31, 2015 and 2014:



	2015			2014
Balance as at January 1	$	861,800		$	—
Less: reinsurance reserves recoverable	325,209			—
Net balance as at January 1	536,591			—
Net incurred losses and LAE:
Current period	367,040			229,488
Prior periods	(39,356		)	(11,059		)
Total net incurred losses and LAE	327,684			218,429
Net paid losses:
Current period	(62,739		)	(49,489		)
Prior periods	(149,820		)	(80,315		)
Total net paid losses	(212,559		)	(129,804		)
Effect of exchange rate movement	(17,821		)	(16,716		)
Acquired on purchase of subsidiaries	—			464,682
Assumed business	—			—
Net balance as at December 31	633,895			536,591
Plus: reinsurance reserves recoverable	299,783			325,209
Balance as at December 31	$	933,678		$	861,800

Net incurred losses and LAE for the years ended December 31, 2015 and 2014 were as follows:



	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	149,820		$	62,739	$	212,559		$	80,315		$	49,489	$	129,804
Net change in case and LAE reserves	15,772			61,447		77,219			24,208			13,396		37,604
Net change in IBNR reserves	(200,730		)	238,634		37,904			(105,177		)	164,047		58,870
Increase (reduction) in estimates of net ultimate losses	(35,138		)	362,820		327,682			(654		)	226,932		226,278
Increase (reduction) in provisions for unallocated LAE	(683		)	4,220		3,537			(7,644		)	2,556		(5,088		)
Amortization of fair value adjustments	(3,535		)	—		(3,535		)	(2,761		)	—		(2,761		)
Net incurred losses and LAE	$	(39,356	)	$	367,040	$	327,684		$	(11,059	)	$	229,488	$	218,429