
	6.	Reserves for Unpaid Losses and Loss Adjustment Expenses:

Activity in the reserves for unpaid losses and LAE is summarized as follows (in thousands):



		2014		2013		2012

Balance at January 1	$	382,640	$	313,416	$	296,945
Less reinsurance recoverable		70,172		49,584		42,044
Net Balance at January 1		312,468		263,832		254,901

Incurred related to:
Current year		215,258		251,391		230,089
Prior years		(5,203)		9,954		(3,675)
Total incurred		210,055		261,345		226,414

Paid related to:
Current year		76,231		101,897		107,945
Prior years		123,100		110,812		109,538
Total paid		199,331		212,709		217,483

Net Balance at December 31		323,192		312,468		263,832
Plus reinsurance recoverable		91,943		70,172		49,584
Balance at December 31	$	415,135	$	382,640	$	313,416

The $5.2 million favorable development, $10.0 million unfavorable development and $3.7 million favorable development in prior accident years recognized in 2014, 2013 and 2012, respectively, represent normal changes in our loss reserve estimates. In 2014 and 2012, the aggregate loss reserve estimates for prior years were decreased to reflect favorable loss development when the available information indicated a reasonable likelihood that the ultimate losses would be less than the previous estimates. In 2013, the aggregate loss reserve estimates for prior years were increased to reflect unfavorable loss development when the available information indicated a reasonable likelihood that the ultimate losses would be more than the previous estimates. Generally, changes in reserves are caused by variations between actual experience and previous expectations and by reduced emphasis on the Bornhuetter-Ferguson method due to the aging of the accident years.

The $5.2 million decrease in reserves for unpaid losses and LAE recognized in 2014 was attributable to $7.2 million favorable development on claims incurred in the 2013 accident year, $4.4 million unfavorable development on claims incurred in the 2012 accident year and $2.4 million favorable development on claims incurred in the 2011 and prior accident years. Our Standard Commercial P&C business unit, Personal Lines business unit, Workers Compensation business unit and Hallmark Select business unit accounted for $4.1 million, $2.9 million, $1.9 million and $1.0 million, respectively, of the decrease in reserves recognized during 2014. The decrease in reserves for our Standard Commercial P&C business unit was primarily related to our commercial auto and general liability lines of business. The decrease in reserves for our Personal Lines business unit was primarily attributable to the 2013 accident year. The decrease in reserves for our Workers Compensation business unit was attributable to the 2013, 2012 and 2011 and prior accident years. The decrease in reserves for our Hallmark Select business unit was primarily related to $0.9 million favorable development in our commercial excess liability line of business and $0.4 million favorable development in our medical professional liability products, partially offset by a $0.3 million unfavorable development in our general aviation line of business. These favorable developments were partially offset by unfavorable development of $4.7 million in our E&S Commercial business unit primarily related to our commercial auto liability and general liability lines of business.

The $10.0 million increase in reserves for unpaid losses and LAE recognized in 2013 was attributable to $5.0 million unfavorable development on claims incurred in the 2012 accident year, $1.7 million unfavorable development on claims incurred in the 2011 accident year and $3.3 million unfavorable development on claims incurred in the 2010 and prior accident years. Our E&S Commercial business unit and Personal Lines business unit accounted for $16.0 million and $1.8 million of the increase in reserves recognized during 2013. The increase in reserves for our E&S Commercial business unit was primarily related to commercial auto liability line of business. The increase in reserves for our Personal Lines business unit was primarily related to personal auto in the 2012 accident year. These unfavorable developments were partially offset by favorable prior years’ loss development of $3.7 million in our Standard Commercial P&C business unit, $2.6 million in our Hallmark Select business unit and $1.5 million in our Workers Compensation business unit. The decrease in reserves for our Standard Commercial P&C business unit was primarily related to commercial auto and general liability line of business. The decrease in reserves for our Hallmark Select business unit was driven by $2.3 million of favorable claims development in the 2011 and prior accident years related to our aircraft liability lines of business, partially offset by $0.1 million unfavorable claims development in the 2012 accident year related to our aircraft hull coverage. Further contributing to the decrease in reserves for our Hallmark Select business unit was $0.4 million of favorable claims development in our excess & umbrella lines of business. The decrease in reserves for our Workers Compensation business unit was related to the 2012 and 2011 accident years.

The $3.7 million decrease in reserves for unpaid losses and LAE recognized in 2012 was attributable to $0.4 million favorable development on claims incurred in the 2011 accident year, $0.8 million favorable development on claims incurred in the 2010 accident year and $2.5 million favorable development on claims incurred in the 2009 and prior accident years. Our Standard Commercial P&C business unit, Hallmark Select business unit and E&S Commercial business unit accounted for $3.7 million, $3.3 million and $0.3 million, respectively, of the decrease in reserves recognized during 2012. The decrease in reserves for our Standard Commercial P&C business unit was primarily related to commercial auto, commercial property and general liability lines of business. The decrease in reserves for our Hallmark Select business unit was primarily related to our aircraft liability lines of business. The decrease in reserves for our E&S Commercial business unit was primarily related to general liability. These favorable developments were partially offset by unfavorable prior years’ loss development of $3.6 million in our Personal Lines business unit related to auto liability claims spread throughout various states and our low value dwelling/homeowners line of business.