The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first three months of 2021 and 2020:

	For the Three Months
	Ended March 31,
(in thousands)	2021			2020
Unpaid losses and LAE at beginning of year
Gross	$	1,750,049		$	1,574,352
Ceded		(443,729	)		(384,517	)
Net	$	1,306,320		$	1,189,835

Adoption impact of ASU 2016-13 on reinsurance balances recoverable	$	—		$	(1,345	)

Increase (decrease) in incurred losses and LAE
Current accident year	$	142,013		$	126,194
Prior accident years		(37,121	)		(15,173	)
Total incurred	$	104,892		$	111,021

Loss and LAE payments for claims incurred
Current accident year	$	(5,962	)	$	(9,295	)
Prior accident years		(64,896	)		(81,897	)
Total paid	$	(70,858	)	$	(91,192	)

Net unpaid losses and LAE at March 31	$	1,340,354		$	1,208,319

Unpaid losses and LAE at March 31
Gross	$	1,795,275		$	1,574,760
Ceded		(454,921	)		(366,441	)
Net	$	1,340,354		$	1,208,319

We adopted ASU 2016-13, Financial Instruments – Credit Losses, on January 1, 2020, which required financial assets, including reinsurance balances recoverable, to be presented at the net amount expected to be collected. We previously maintained an allowance for uncollectible reinsurance balances prior to the adoption of this update. However, in order to comply with the updated requirements, we released $1.3 million of the allowance on uncollectible reinsurance balances upon adoption. The implementation guidance required the cumulative-effect adjustment be made to the beginning balance of retained earnings, rather than through net earnings like historical changes have and ongoing modifications will continue to be recorded.

For the first three months of 2021, incurred losses and LAE included $37.1 million of favorable development on prior years’ loss reserves. General liability, transportation, small commercial, professional services, personal umbrella and surety were drivers of the favorable development. No products experienced significant adverse development.

For the first three months of 2020, incurred losses and LAE included $15.2 million of favorable development on prior years’ loss reserves. The majority of products experienced modest amounts of favorable development on prior accident years, with notable contributions from transportation, marine, small commercial and surety. No products experienced significant adverse development.

Actuarial models base future emergence on historic experience, with adjustments for current trends, and the appropriateness of these assumptions involved more uncertainty as of March 31, 2021. We expect there will be impacts to the timing of loss emergence and ultimate loss ratios for certain coverages we underwrite as a result of the spread of COVID-19 and the related economic shutdown. The industry is experiencing new issues, including the postponement of civil court cases, the extension of various statutes of limitations, changes in settlement trends and a significant reduction in economic activity and insured exposure in some classes. Our recorded reserves include consideration of these factors, but the duration and degree to which these issues persist, along with potential legislative, regulatory or judicial actions, could result in loss reserve deficiencies and reduce earnings in future periods.