LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for losses and loss adjustment expenses ("LAE") includes an amount determined from reported claims and an amount based on historical loss experience and industry statistics for incurred but not reported ("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. Refer to Note 9 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information on establishing the liability for losses and LAE.

The following table summarizes the liability for losses and LAE by segment as at June 30, 2016 and December 31, 2015:



	June 30, 2016											December 31, 2015
	Non-life Run-off			Atrium		StarStone			Total			Non-life Run-off			Atrium		StarStone			Total
Outstanding losses	$	2,991,786		$	69,268	$	476,941		$	3,537,995		$	2,757,774		$	68,913	$	457,175		$	3,283,862
IBNR	2,385,358			129,422		518,558			3,033,338			1,991,009			115,613		477,990			2,584,612
Fair value adjustments	(151,017		)	14,534		(1,005		)	(137,488		)	(163,329		)	16,491		(1,487		)	(148,325		)
Total	$	5,226,127		$	213,224	$	994,494		$	6,433,845		$	4,585,454		$	201,017	$	933,678		$	5,720,149

The overall increase in the liability for losses and LAE between December 31, 2015 and June 30, 2016 was primarily attributable to the assumed reinsurance agreement with Allianz in our Non-life Run-off segment as described in Note 2 - "Significant New Business."

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Balance as at beginning of period	$	6,641,507		$	5,724,623	$	5,720,149		$	4,509,421
Less: reinsurance reserves recoverable	1,302,738			1,518,102		1,360,382			1,154,196
Less: deferred charges on retroactive reinsurance	254,300			—		255,911			—
Net balance as at beginning of period	5,084,469			4,206,521		4,103,856			3,355,225
Net incurred losses and LAE:
Current period	126,634			121,335		241,936			234,349
Prior periods	(30,172		)	(55,435)		(62,256		)	(98,313		)
Total net incurred losses and LAE	96,462			65,900		179,680			136,036
Net paid losses:
Current period	(17,022		)	(21,490)		(22,356		)	(32,654		)
Prior periods	(203,010		)	(194,485)		(389,413		)	(312,641		)
Total net paid losses	(220,032		)	(215,975)		(411,769		)	(345,295		)
Effect of exchange rate movement	(28,127		)	24,723		(23,246		)	(29,423		)
Acquired on purchase of subsidiaries	10,019			—		10,019			774,758
Assumed business	—			305,763		1,084,251			495,631
Net balance as at June 30	4,942,791			4,386,932		4,942,791			4,386,932
Plus: reinsurance reserves recoverable	1,243,782			1,491,113		1,243,782			1,491,113
Plus: deferred charge on retroactive reinsurance	247,272			265,426		247,272			265,426
Balance as at June 30	$	6,433,845		$	6,143,471	$	6,433,845		$	6,143,471

The tables below provide the net incurred losses and LAE in the Non-life Run-off, Atrium and StarStone segments for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30, 2016												Three Months Ended June 30, 2015
	Non-life Run-off			Atrium			StarStone			Total			Non-life Run-off			Atrium			StarStone			Total
Net losses paid	$	143,056		$	12,523		$	64,453		$	220,032		$	164,440		$	12,121		$	39,414		$	215,975
Net change in case and LAE reserves	(74,560		)	2,035			21,736			(50,789		)	(104,330		)	136			46,729			(57,465		)
Net change in IBNR reserves	(102,836		)	3,538			17,285			(82,013		)	(75,957		)	5,186			(5,690		)	(76,461		)
Increase (reduction) in estimates of net ultimate losses	(34,340		)	18,096			103,474			87,230			(15,847		)	17,443			80,453			82,049
Reduction in provisions for bad debt	(5,184		)	—			—			(5,184		)	(625		)	—			—			(625		)
Increase (reduction) in provisions for unallocated LAE	(6,571		)	50			758			(5,763		)	(7,711		)	(8		)	1,055			(6,664		)
Amortization of fair value adjustments	21,405			(1,013		)	(213		)	20,179			(4,687		)	(3,678		)	(495		)	(8,860		)
Net incurred losses and LAE	$	(24,690	)	$	17,133		$	104,019		$	96,462		$	(28,870	)	$	13,757		$	81,013		$	65,900



	Six Months Ended June 30, 2016												Six Months Ended June 30, 2015
	Non-life Run-off			Atrium			StarStone			Total			Non-life Run-off			Atrium			StarStone			Total
Net losses paid	$	275,369		$	20,271		$	116,129		$	411,769		$	229,700		$	24,032		$	91,563		$	345,295
Net change in case and LAE reserves	(183,345		)	263			34,391			(148,691		)	(111,330		)	(883		)	44,943			(67,270		)
Net change in IBNR reserves	(139,899		)	13,429			44,372			(82,098		)	(113,235		)	1,376			20,049			(91,810		)
Increase (reduction) in estimates of net ultimate losses	(47,875		)	33,963			194,892			180,980			5,135			24,525			156,555			186,215
Reduction in provisions for bad debt	(6,630		)	—			—			(6,630		)	(20,439		)	—			—			(20,439		)
Increase (reduction) in provisions for unallocated LAE	(14,361		)	134			1,768			(12,459		)	(21,686		)	(70		)	1,711			(20,045		)
Amortization of fair value adjustments	20,622			(1,375		)	(1,458		)	17,789			(4,980		)	(3,678		)	(1,037		)	(9,695		)
Net incurred losses and LAE	$	(48,244	)	$	32,722		$	195,202		$	179,680		$	(41,970	)	$	20,777		$	157,229		$	136,036

Non-Life Run-off Segment

The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the three and six months ended June 30, 2016 and 2015 for the Non-life Run-off segment:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Balance as at beginning of period	$	5,459,216	$	4,693,262		$	4,585,454	$	3,435,010
Less: reinsurance reserves recoverable	977,096		1,210,933			1,034,747		800,709
Less: deferred charges on retroactive insurance	254,300		—			255,911		—
Net balance as at beginning of period	4,227,820		3,482,329			3,294,796		2,634,301
Net incurred losses and LAE:
Current period	518		22,547			6,587		43,273
Prior periods	(25,208)		(51,417		)	(54,831)		(85,243		)
Total net incurred losses and LAE	(24,690)		(28,870		)	(48,244)		(41,970		)
Net paid losses:
Current period	(2,058)		(9,434		)	(4,048)		(14,005		)
Prior periods	(140,998)		(155,006		)	(271,321)		(215,695		)
Total net paid losses	(143,056)		(164,440		)	(275,369)		(229,700		)
Effect of exchange rate movement	(18,963)		25,876			(14,323)		(12,362		)
Acquired on purchase of subsidiaries	10,019		—			10,019		774,758
Assumed business	0		305,763			1,084,251		495,631
Net balance as at June 30	4,051,130		3,620,658			4,051,130		3,620,658
Plus: reinsurance reserves recoverable	927,725		1,178,053			927,725		1,178,053
Plus: deferred charge on retroactive reinsurance	247,272		265,426			247,272		265,426
Balance as at June 30	$	5,226,127	$	5,064,137		$	5,226,127	$	5,064,137

Net incurred losses and LAE in the Non-life Run-off segment for the three months ended June 30, 2016 and 2015 were as follows:



	Three Months Ended June 30,
	2016									2015
	Prior Period			Current Period			Total			Prior Period			Current Period		Total
Net losses paid	$	140,998		$	2,058		$	143,056		$	155,006		$	9,434	$	164,440
Net change in case and LAE reserves	(74,832		)	272			(74,560		)	(108,819		)	4,489		(104,330		)
Net change in IBNR reserves	(101,240		)	(1,596		)	(102,836		)	(84,581		)	8,624		(75,957		)
Increase (reduction) in estimates of net ultimate losses	(35,074		)	734			(34,340		)	(38,394		)	22,547		(15,847		)
Increase (reduction) in provisions for bad debt	(5,184		)	—			(5,184		)	(625		)	—		(625		)
Increase (reduction) in provisions for unallocated LAE	(6,355		)	(216		)	(6,571		)	(7,711		)	—		(7,711		)
Amortization of fair value adjustments	21,405			—			21,405			(4,687		)	—		(4,687		)
Net incurred losses and LAE	$	(25,208	)	$	518		$	(24,690	)	$	(51,417	)	$	22,547	$	(28,870	)

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.

Three Months Ended June 30, 2016

The reduction in net incurred losses and LAE for the three months ended June 30, 2016 of $24.7 million included net incurred losses and LAE of $0.5 million related to current period net earned premium of $0.5 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $0.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $25.2 million, which was attributable to a reduction in estimates of net ultimate losses of $35.1 million, a reduction in provisions for bad debt of $5.2 million and a reduction in provisions for unallocated LAE of $6.4 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $21.4 million.

The reduction in provisions for bad debt of $5.2 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.

Three Months Ended June 30, 2015

The reduction in net incurred losses and LAE for the three months ended June 30, 2015 of $28.9 million included net incurred losses and LAE of $22.5 million related to current period net earned premium of $17.2 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $22.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $51.4 million, which was attributable to a reduction in estimates of net ultimate losses of $38.4 million, a reduction in provisions for bad debt of $0.6 million, a reduction in provisions for unallocated LAE of $7.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $4.7 million.

Net incurred losses and LAE in the Non-life Run-off segment for the six months ended June 30, 2016 and 2015 were as follows:



	Six Months Ended June 30,
	2016								2015
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	271,321		$	4,048	$	275,369		$	215,695		$	14,005	$	229,700
Net change in case and LAE reserves	(183,801		)	456		(183,345		)	(118,813		)	7,483		(111,330		)
Net change in IBNR reserves	(141,753		)	1,854		(139,899		)	(135,020		)	21,785		(113,235		)
Increase (reduction) in estimates of net ultimate losses	(54,233		)	6,358		(47,875		)	(38,138		)	43,273		5,135
Increase (reduction) in provisions for bad debt	(6,630		)	—		(6,630		)	(20,439		)	—		(20,439		)
Increase (reduction) in provisions for unallocated LAE	(14,590		)	229		(14,361		)	(21,686		)	—		(21,686		)
Amortization of fair value adjustments	20,622			—		20,622			(4,980		)	—		(4,980		)
Net incurred losses and LAE	$	(54,831	)	$	6,587	$	(48,244	)	$	(85,243	)	$	43,273	$	(41,970	)

Six Months Ended June 30, 2016

The reduction in net incurred losses and LAE for the six months ended June 30, 2016 of $48.2 million included net incurred losses and LAE of $6.6 million related to current period net earned premium of $5.0 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $6.6 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $54.8 million, which was attributable to a reduction in estimates of net ultimate losses of $54.2 million, a reduction in provisions for bad debt of $6.6 million and a reduction in provisions for unallocated LAE of $14.6 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $20.6 million.

The reduction in provisions for bad debt of $6.6 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.

Six Months Ended June 30, 2015

The reduction in net incurred losses and LAE for the six months ended June 30, 2015 of $42.0 million included net incurred losses and LAE of $43.3 million related to current period net earned premium of $35.8 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $43.3 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $85.2 million, which was attributable to a reduction in estimates of net ultimate losses of $38.1 million, reduction in provisions for bad debt of $20.4 million, a reduction in provisions for unallocated LAE liabilities of $21.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $5.0 million.

Atrium

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Balance as at beginning of period	$	209,919	$	202,873	$	201,017	$	212,611
Less: reinsurance reserves recoverable	26,249		26,629		25,852		28,278
Net balance as at beginning of period	183,670		176,244		175,165		184,333
Net incurred losses and LAE:
Current period	20,568		17,495		36,631		32,373
Prior periods	(3,435)		(3,738)		(3,909)		(11,596)
Total net incurred losses and LAE	17,133		13,757		32,722		20,777
Net paid losses:
Current period	(5,255)		(4,538)		(7,493)		(7,408)
Prior periods	(7,268)		(7,583)		(12,778)		(16,624)
Total net paid losses	(12,523)		(12,121)		(20,271)		(24,032)
Effect of exchange rate movement	(1,912)		1,608		(1,248)		(1,590)
Net balance as at June 30	186,368		179,488		186,368		179,488
Plus: reinsurance reserves recoverable	26,856		26,011		26,856		26,011
Balance as at June 30	$	213,224	$	205,499	$	213,224	$	205,499

Net incurred losses and LAE in the Atrium segment for the three and six months ended June 30, 2016 and 2015 were as follows:



	Three Months Ended June 30,
	2016								2015
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	7,268		$	5,255	$	12,523		$	7,583		$	4,538	$	12,121
Net change in case and LAE reserves	(3,391		)	5,426		2,035			(3,946		)	4,082		136
Net change in IBNR reserves	(6,181		)	9,719		3,538			(3,560		)	8,746		5,186
Increase (reduction) in estimates of net ultimate losses	(2,304		)	20,400		18,096			77			17,366		17,443
Increase (reduction) in provisions for unallocated LAE	(118		)	168		50			(137		)	129		(8		)
Amortization of fair value adjustments	(1,013		)	—		(1,013		)	(3,678		)	—		(3,678		)
Net incurred losses and LAE	$	(3,435	)	$	20,568	$	17,133		$	(3,738	)	$	17,495	$	13,757



	Six Months Ended June 30,
	2016							2015
	Prior Period			Current Period		Total		Prior Period			Current Period		Total
Net losses paid	$	12,778		$	7,493	$	20,271	$	16,624		$	7,408	$	24,032
Net change in case and LAE reserves	(7,351)			7,614		263		(7,657)			6,774		(883)
Net change in IBNR reserves	(7,772)			21,201		13,429		(16,553)			17,929		1,376
Increase (reduction) in estimates of net ultimate losses	(2,345)			36,308		33,963		(7,586)			32,111		24,525
Increase (reduction) in provisions for unallocated LAE	(189)			323		134		(332)			262		(70)
Amortization of fair value adjustments	(1,375)			—		(1,375)		(3,678)			—		(3,678)
Net incurred losses and LAE	$	(3,909	)	$	36,631	$	32,722	$	(11,596	)	$	32,373	$	20,777

StarStone

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016			2015
Balance as at beginning of period	$	972,372	$	828,488		$	933,678		$	861,800
Less: reinsurance reserves recoverable	299,393		280,540			299,783			325,209
Net balance as at beginning of period	672,979		547,948			633,895			536,591
Net incurred losses and LAE:
Current period	105,548		81,293			198,718			158,703
Prior periods	(1,529)		(280		)	(3,516		)	(1,474		)
Total net incurred losses and LAE	104,019		81,013			195,202			157,229
Net paid losses:
Current period	(9,709)		(7,518		)	(10,815		)	(11,241		)
Prior periods	(54,744)		(31,896		)	(105,314		)	(80,322		)
Total net paid losses	(64,453)		(39,414		)	(116,129		)	(91,563		)
Effect of exchange rate movement	(7,252)		(2,761		)	(7,675		)	(15,471		)
Net balance as at June 30	705,293		586,786			705,293			586,786
Plus: reinsurance reserves recoverable	289,201		287,049			289,201			287,049
Balance as at June 30	$	994,494	$	873,835		$	994,494		$	873,835

Net incurred losses and LAE in the StarStone segment for the three and six months ended June 30, 2016 and 2015 were as follows:



	Three Months Ended June 30,
	2016								2015
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	54,744		$	9,709	$	64,453		$	31,896		$	7,518	$	39,414
Net change in case and LAE reserves	(26,737		)	48,473		21,736			6,397			40,332		46,729
Net change in IBNR reserves	(28,321		)	45,606		17,285			(38,584		)	32,894		(5,690		)
Increase (reduction) in estimates of net ultimate losses	(314		)	103,788		103,474			(291		)	80,744		80,453
Increase (reduction) in provisions for unallocated LAE	(1,002		)	1,760		758			506			549		1,055
Amortization of fair value adjustments	(213		)	—		(213		)	(495		)	—		(495		)
Net incurred losses and LAE	$	(1,529	)	$	105,548	$	104,019		$	(280	)	$	81,293	$	81,013



	Six Months Ended June 30,
	2016								2015
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	105,314		$	10,815	$	116,129		$	80,322		$	11,241	$	91,563
Net change in case and LAE reserves	(22,102		)	56,493		34,391			(3,934		)	48,877		44,943
Net change in IBNR reserves	(83,234		)	127,606		44,372			(76,262		)	96,311		20,049
Increase (reduction) in estimates of net ultimate losses	(22		)	194,914		194,892			126			156,429		156,555
Increase (reduction) in provisions for unallocated LAE	(2,036		)	3,804		1,768			(563		)	2,274		1,711
Amortization of fair value adjustments	(1,458		)	—		(1,458		)	(1,037		)	—		(1,037		)
Net incurred losses and LAE	$	(3,516	)	$	198,718	$	195,202		$	(1,474	)	$	158,703	$	157,229