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

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, 2013 and 2012 was as follows (in thousands of U.S. dollars):

		2013		2012

Case reserves	$	4,663,164	$	4,872,591
ACRs		403,145		354,382
IBNR reserves		5,580,009		5,482,398

Total unpaid losses and loss expenses	$	10,646,318	$	10,709,371

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, 2013, 2012 and 2011 was as follows (in thousands of U.S. dollars):

			2013		2012		2011

Gross liability at beginning of year		$	10,709,371	$	11,273,091	$	10,666,604
Reinsurance recoverable at beginning of year			291,330		353,105		348,747

Net liability at beginning of year			10,418,041		10,919,986		10,317,857

Net incurred losses related to:
	Current year		3,118,755		2,785,694		4,252,766
	Prior years		(721,499)		(628,065)		(530,457)

			2,397,256		2,157,629		3,722,309

Change in Paris Re Reserve Agreement			(49,544)		(86,163)		(61,383)

Net paid losses related to:
	Current year		242,053		237,783		930,407
	Prior years		2,159,506		2,467,279		2,060,152

			2,401,559		2,705,062		2,990,559
Effects of foreign exchange rate changes			14,740		131,651		(68,238)

Net liability at end of year			10,378,934		10,418,041		10,919,986
Reinsurance recoverable at end of year			267,384		291,330		353,105

Gross liability at end of year		$	10,646,318	$	10,709,371	$	11,273,091

The reconciliation of losses and loss expenses including life policy benefits for the years ended December 31, 2013, 2012 and 2011 was as follows (in thousands of U.S. dollars):

			2013		2012		2011

Net incurred losses related to:
	Non-life	$	2,397,256	$	2,157,629	$	3,722,309
	Life and Health		760,552		646,981		650,261

Losses and loss expenses and life policy benefits		$	3,157,808	$	2,804,610	$	4,372,570

The net favorable prior year loss development for each of the Company's Non-life sub-segments for the years ended December 31, 2013, 2012 and 2011 was as follows (in thousands of U.S. dollars):

			2013		2012		2011

Net favorable prior year loss development:
Non-life sub-segment
	North America	$	222,839	$	218,483	$	189,180
	Global (Non-U.S.) P&C		180,052		114,279		115,995
	Global Specialty		227,383		250,523		128,975
	Catastrophe		91,225		44,780		96,307

Total net favorable prior year loss development		$	721,499	$	628,065	$	530,457

Within the Company's North America sub-segment, the Company reported net favorable loss development for prior accident years in 2013, 2012 and 2011. The net favorable loss development for prior accident years in 2013, 2012 and 2011 was driven by most lines of business, with the casualty line being the most pronounced. 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 2013, 2012 and 2011. The net favorable loss development for prior accident years in 2013 was driven by all lines of business, with the property line being the most pronounced, and included favorable loss emergence related to certain catastrophic and large loss events. The net favorable loss development for prior accident years in 2012 was driven by all lines of business, with the property line being the most pronounced. The net favorable loss development for prior accident years in 2011 was driven by all lines of business, most notably by the motor 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 2013, 2012 and 2011. 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 for prior accident years in 2012 was driven by most lines of business, predominantly the specialty property, aviation/space and marine lines, while the engineering line experienced adverse loss development for prior accident years of $6 million. The net favorable loss development for prior accident years in 2011 was driven by most lines of business, except for the energy and engineering lines, which experienced combined adverse loss development for prior accident years of $13 million. 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 2013, 2012 and 2011. The net favorable loss development in each year was primarily due to favorable loss emergence.

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 and Other reinsurance balances payable in the Consolidated Balance Sheets at December 31, 2013 and 2012, 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, 2013, 2012 and 2011 includes the change in the Reserve Agreement. At December 31, 2013 and 2012, the Company's net liability for unpaid losses and loss expenses includes $727 million and $857 million, respectively, of guaranteed reserves, with the decrease from December 31, 2012 to December 31, 2013 being primarily related to the run-off of the underlying loss reserves.

A significant amount of judgment was used to estimate the range of potential losses related to the 2010 and the February and June 2011 New Zealand Earthquakes (collectively, the New Zealand Earthquakes) and the Japan Earthquake, and there remains a considerable degree of uncertainty related to the range of possible ultimate losses related to these events and, in particular, the New Zealand Earthquakes. 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, 2013.

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 additional 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.

The Company's net reserves for unpaid losses and loss expenses at December 31, 2013 and 2012 included $193 million and $199 million, respectively, that represent estimates of its net ultimate liability for asbestos and environmental claims. The gross liability for such claims at December 31, 2013 and 2012 was $203 million and $205 million, respectively, which primarily relate to Paris Re's gross liability for asbestos and environmental claims for accident years 2005 and prior of $123 million and $125 million, respectively, with any favorable or adverse development being subject to the Reserve Agreement. Of the remaining $80 million in gross reserves at December 31, 2013 and 2012, 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.

The Life and Health segment reported net favorable loss development for prior accident years of $39 million, $14 million and $1 million for the years ended December 31, 2013, 2012 and 2011, respectively.

The net favorable prior year loss development of $39 million in 2013 was primarily related to the guaranteed minimum death benefit (GMDB) business and, to a lesser extent, certain short-term treaties in the mortality line of business. The net favorable development was primarily due to favorable claims experience, data updates received from cedants and improvements in the capital markets related to the GMDB business.

The net favorable prior year loss development of $14 million in 2012 was primarily related to the GMDB business, mainly driven by improvements in the capital markets, and certain short-term treaties in the mortality line of business.

The modest net favorable prior year loss development of $1 million in 2011 was the net result of favorable prior year loss development on certain mortality treaties and the GMDB business, which were almost entirely offset by adverse prior year loss development related to disability riders on certain short-term non-proportional treaties in the mortality line following the receipt of updated information from cedants.

The Company used interest rate assumptions to estimate its liabilities for policy benefits for life and annuity contracts which ranged from 0.1% to 6.8% and 0.2% to 6.6% at December 31, 2013 and 2012, respectively.