8. Unpaid Losses and Loss Expenses and Policy Benefits for Life and Annuity Contracts

(a) Unpaid Losses and Loss Expenses

Unpaid losses and loss expenses are categorized into three types of reserves: case reserves, ACRs and IBNR reserves. Case reserves represent unpaid losses reported by the Company’s cedants and recorded by the Company. ACRs are established for particular circumstances where, on the basis of individual loss reports, the Company estimates that the particular loss or collection of losses covered by a treaty may be greater than those advised by the cedant. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves and ACRs. The Company’s gross liability for unpaid losses and loss expenses reported by cedants (case reserves) and those estimated by the Company (ACRs and IBNR reserves) at December 31, 2015 and 2014 was as follows (in thousands of U.S. dollars):



	2015		2014
Case reserves	$	3,716,195	$	4,236,038
ACRs	190,183		253,890
IBNR reserves	5,158,333		5,255,878
Total unpaid losses and loss expenses	$	9,064,711	$	9,745,806

The reconciliation of the beginning and ending gross and net liability for unpaid losses and loss expenses, excluding policy benefits for life and annuity contracts, for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands of U.S. dollars):



	2015			2014			2013
Gross liability at beginning of year	$	9,745,806		$	10,646,318		$	10,709,371
Reinsurance recoverable at beginning of year	214,349			267,384			291,330
Net liability at beginning of year	9,531,457			10,378,934			10,418,041
Net incurred losses related to:
Current year	3,023,704			3,122,981			3,118,755
Prior years	(830,705		)	(660,413		)	(721,499		)
	2,192,999			2,462,568			2,397,256
Change in Paris Re Reserve Agreement	(8,771		)	(25,412		)	(49,544		)
Net paid losses related to:
Current year	250,720			267,806			242,053
Prior years	2,171,883			2,530,743			2,159,506
	2,422,603			2,798,549			2,401,559
Effects of foreign exchange rate changes	(417,605		)	(486,084		)	14,740
Net liability at end of year	8,875,477			9,531,457			10,378,934
Reinsurance recoverable at end of year	189,234			214,349			267,384
Gross liability at end of year	$	9,064,711		$	9,745,806		$	10,646,318

The reconciliation of losses and loss expenses including life policy benefits for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands of U.S. dollars):



	2015		2014		2013
Net incurred losses related to:
Non-life	$	2,192,999	$	2,462,568	$	2,397,256
Life and Health	964,421		1,000,202		760,552
Losses and loss expenses and life policy benefits	$	3,157,420	$	3,462,770	$	3,157,808

The net favorable prior year loss development for each of the Company’s Non-life sub-segments for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands of U.S. dollars):



	2015		2014		2013
Net favorable prior year loss development:
Non-life sub-segment
North America	$	284,406	$	250,942	$	222,839
Global (Non-U.S.) P&C	96,438		134,394		180,052
Global Specialty	434,244		257,696		227,383
Catastrophe	15,617		17,381		91,225
Total net favorable prior year loss development	$	830,705	$	660,413	$	721,499

For the Company’s North America sub-segment, the Company reported net favorable loss development for prior accident years in 2015, 2014 and 2013. The net favorable loss development for prior accident years in 2015, 2014 and 2013 was driven by most lines of business, predominantly the casualty line. The net favorable loss development in each year was primarily due to favorable loss emergence.

For the Global (Non-U.S.) P&C sub-segment, the Company reported net favorable loss development for prior accident years in 2015, 2014 and 2013. The net favorable loss development for prior accident years in 2015, 2014 and 2013 was driven by all lines of business, primarily the property line. The net favorable loss development in each year was primarily due to favorable loss emergence.

For the Global Specialty sub-segment, the Company reported net favorable loss development for prior accident years in 2015, 2014 and 2013. The net favorable loss development for prior accident years in 2015 was driven by all lines of business, primarily the marine, aviation/space, specialty casualty, energy and credit/surety lines. The net favorable loss development for prior accident years in 2014 was driven by most lines of business, predominantly the marine, specialty property and aviation/space lines, while the credit/surety and engineering lines experienced adverse loss development. The net favorable loss development for prior accident years in 2013 was driven by all lines of business, predominantly the aviation/space, marine and specialty property lines. The net favorable loss development in each year was primarily due to favorable loss emergence.

For the Catastrophe sub-segment, the Company reported net favorable loss development for prior accident years in 2015, 2014 and 2013. The net favorable loss development in 2015, 2014 and 2013 was primarily due to favorable loss emergence, and for 2015 and 2014, partially offset by adverse development related to the earthquakes that occurred in New Zealand in 2010 and 2011 (see Note 8(c)).

(b) Paris Re Reserve Agreement

Following Paris Re’s acquisition of substantially all of the reinsurance operations of Colisée Re in 2006, Paris Re’s French operating subsidiary (Paris Re France) entered into a reserve agreement (Reserve Agreement), which provides that AXA and Colisée Re shall guarantee reserves in respect of Paris Re France and subsidiaries acquired in the acquisition. The Reserve Agreement relates to losses incurred prior to December 31, 2005. Accordingly, the Company’s Consolidated Statements of Operations do not include any favorable or adverse development related to these guaranteed reserves. The reserve guarantee provided by AXA and Colisée Re is conditioned upon, among other things, the guaranteed business, including all related ceded reinsurance, being managed by AXA Liabilities Managers, an affiliate of Colisée Re.

Favorable or adverse development related to the guaranteed reserves is recorded as a change in unpaid losses and loss expenses in the Consolidated Balance Sheets and as a change in the Reserve Agreement payable or receivable balance to/from Colisée Re, which is included within the Funds held – directly managed account in the Consolidated Balance Sheets at December 31, 2015 and 2014, respectively. Accordingly, the reconciliation of the beginning and ending gross and net liability for unpaid losses and loss expenses for the years ended December 31, 2015, 2014 and 2013 includes the change in the Reserve Agreement. At December 31, 2015 and 2014, the Company’s net liability for unpaid losses and loss expenses includes $514 million and $575 million, respectively, of guaranteed reserves, with the decrease from December 31, 2014 to December 31, 2015 being primarily related to the run-off of the underlying loss reserves associated with this account and, to a lesser extent, the impact of the strengthening of the U.S. dollar against most major currencies.

A significant amount of judgment was used to estimate the range of potential losses related to the earthquakes that occurred in New Zealand in 2010 and 2011 (New Zealand Earthquakes), and there remains a considerable degree of uncertainty related to the range of possible ultimate losses associated with these events. Loss estimates arising from earthquakes are inherently more uncertain than those from other catastrophic events and the Company believes the ultimate losses arising from the New Zealand Earthquakes may be materially in excess of, or less than, the amounts provided for in the Consolidated Balance Sheet at December 31, 2015.

The remaining significant risks and uncertainties related to the New Zealand Earthquakes include the ongoing cedant revisions of loss estimates for each of these events, the degree to which inflation impacts construction materials required to rebuild affected properties, the characteristics of the Company’s program participation for certain affected cedants and potentially affected cedants, and the expected length of the claims settlement period. In addition, there is further complexity related to the New Zealand Earthquakes given multiple earthquakes occurred in the same region in a relatively short period of time, resulting in cedants continuing to revise their allocation of losses between the various events and between different treaties, under which the Company may provide different amounts of coverage.

(d) Asbestos and Environmental Claims

The Company’s net reserves for unpaid losses and loss expenses at December 31, 2015 and 2014 included $181 million and $189 million, respectively, that represent estimates of its net ultimate liability for asbestos and environmental claims. The gross liability for such claims at December 31, 2015 and 2014 was $191 million and $201 million, respectively, which primarily relate to Paris Re’s gross liability for asbestos and environmental claims for accident years 2005 and prior of $121 million and $127 million, respectively, with any favorable or adverse development being subject to the Reserve Agreement. Of the remaining $70 million and $74 million in gross reserves at December 31, 2015 and 2014, respectively, the majority relates to casualty exposures in the United States arising from business written by the French branch of PartnerRe Europe and PartnerRe U.S.

Ultimate loss estimates for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the amount of the Company’s potential losses for these claims. In view of the legal and tort environment that affect the development of such claims, the uncertainties inherent in estimating asbestos and environmental claims are not likely to be resolved in the near future. There can be no assurance that the reserves established by the Company will not be adversely affected by development of other latent exposures, and further, there can be no assurance that the reserves established by the Company will be adequate. The Company does, however, actively evaluate potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific issues that would materially affect its unpaid losses and loss expense reserves related to this exposure.

(e) Policy Benefits for Life and Annuity Contracts

The Life and Health segment reported net favorable loss development for prior accident years of $47 million, $19 million and $39 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The net favorable prior year loss development of $47 million in 2015 was primarily related to the PartnerRe Health business, the short-term mortality business and the guaranteed minimum death benefit (GMDB) business.

The net favorable prior year loss development of $19 million in 2014 was primarily related to the GMDB business, PartnerRe Health and certain short-term treaties in the mortality line of business.

The net favorable prior year loss development of $39 million in 2013 was primarily related to the GMDB business and, to a lesser extent, certain short-term treaties in the mortality line of business.

The Company used interest rate assumptions to estimate its liabilities for policy benefits for life and annuity contracts which ranged from 0% to 6.8% at December 31, 2015 and 2014, respectively.