RESERVE FOR CLAIMS AND CLAIM EXPENSES

General Description

The Company believes the most significant accounting judgment made by management is its estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts the Company sells. The Company establishes its claims and claim expense reserves by taking claims reported to the Company by insureds and ceding companies, but which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred but not yet reported to the Company, or incurred but not enough reported to the Company (collectively referred to as “IBNR”) and, if deemed necessary, adding costs for additional case reserves which represent the Company’s estimates for claims related to specific contracts previously reported to the Company which it believes may not be adequately estimated by the client as of that date, or adequately covered in the application of IBNR.

On March 2, 2015 the Company acquired Platinum and the transaction was accounted for under the acquisition method of accounting in accordance with FASB ASC Topic Business Combinations. Total consideration paid was allocated among acquired assets and assumed liabilities based on their fair values, including Platinum’s claims and claim expense reserves, which totaled $1.4 billion at March 2, 2015, and consisted of $179.7 million and $1.2 billion included in the Company’s Property and Casualty and Specialty segments, respectively.

The following table summarizes the Company’s claims and claim expense reserves by segment, allocated between case reserves, additional case reserves and IBNR:




At December 31, 2018	Case Reserves		Additional Case Reserves		IBNR		Total
Property	$	690,718	$	1,308,307	$	1,087,229	$	3,086,254
Casualty and Specialty	771,537		116,877		2,096,979		2,985,393
Other	1,458		—		3,166		4,624
Total	$	1,463,713	$	1,425,184	$	3,187,374	$	6,076,271

At December 31, 2017
Property	$	696,285	$	896,522	$	893,583	$	2,486,390
Casualty and Specialty	689,962		124,923		1,760,607		2,575,492
Other	6,605		—		11,921		18,526
Total	$	1,392,852	$	1,021,445	$	2,666,111	$	5,080,408

Activity in the liability for unpaid claims and claim expenses is summarized as follows:




Year ended December 31,	2018			2017			2016
Net reserves as of January 1	$	3,493,778		$	2,568,730		$	2,632,519
Net incurred related to:
Current year	1,390,767			1,902,424			694,957
Prior years	(270,749		)	(40,996		)	(164,126		)
Total net incurred	1,120,018			1,861,428			530,831
Net paid related to:
Current year	391,061			450,527			83,015
Prior years	503,708			524,298			506,279
Total net paid	894,769			974,825			589,294
Foreign exchange	(14,977		)	38,445			(5,326		)
Net reserves as of December 31	3,704,050			3,493,778			2,568,730
Reinsurance recoverable as of December 31	2,372,221			1,586,630			279,564
Gross reserves as of December 31	$	6,076,271		$	5,080,408		$	2,848,294

The Company’s reserving methodology for each line of business uses a loss reserving process that calculates a point estimate for its ultimate settlement and administration costs for claims and claim expenses. The Company does not calculate a range of estimates and does not discount any of its reserves for claims and claim expenses. The Company uses this point estimate, along with paid claims and case reserves, to record its best estimate of additional case reserves and IBNR in its consolidated financial statements. Under GAAP, the Company is not permitted to establish estimates for catastrophe claims and claim expense reserves until an event occurs that gives rise to a loss.

Reserving for reinsurance claims involves other uncertainties, such as the dependence on information from ceding companies, the time lag inherent in reporting information from the primary insurer to the Company or to the Company’s ceding companies, and differing reserving practices among ceding companies. The information received from ceding companies is typically in the form of bordereaux, broker notifications of loss and/or discussions with ceding companies or their brokers. This information may be received on a monthly, quarterly or transactional basis and normally includes paid claims and estimates of case reserves. The Company sometimes also receives an estimate or provision for IBNR. This information is often updated and adjusted from time to time during the loss settlement period as new data or facts in respect of initial claims, client accounts, industry or event trends may be reported or emerge in addition to changes in applicable statutory and case laws.

The Company’s estimates of losses from large events are based on factors including currently available information derived from claims information from certain customers and brokers, industry assessments of losses from the events, proprietary models, and the terms and conditions of the Company’s contracts. The uncertainty of the Company’s estimates for large events is also impacted by the preliminary nature of the information available, the magnitude and relative infrequency of the events, the expected duration of the respective claims development period, inadequacies in the data provided to the relevant date by industry participants and the potential for further reporting lags or insufficiencies; and in certain large events, significant uncertainty as to the form of the claims and legal issues, under the relevant terms of insurance and reinsurance contracts. In addition, a significant portion of the net claims and claim expenses associated with certain large events can be concentrated with a few large clients and therefore the loss estimates for these events may vary significantly based on the claims experience of those clients. The contingent nature of business interruption and other exposures will also impact losses in a meaningful way, which may give rise to significant complexity in respect of claims handling, claims adjustment and other coverage issues, over time. Given the magnitude of certain events, there can be meaningful uncertainty regarding total covered losses for the insurance industry and, accordingly, several of the key assumptions underlying the Company's loss estimates. Loss reserve estimation in respect of the Company's retrocessional contracts poses further challenges compared to directly assumed reinsurance. In addition, the Company’s actual net losses from these events may increase if the Company’s reinsurers or other obligors fail to meet their obligations.

Because of the inherent uncertainties discussed above, the Company has developed a reserving philosophy that attempts to incorporate prudent assumptions and estimates, and the Company has generally experienced favorable net development on prior accident years net claims and claim expenses in the last several years. However, there is no assurance that this favorable development on prior accident years net claims and claim expenses will occur in future periods.

The Company establishes a provision for unallocated loss adjustment expenses ("ULAE") when the related reserve for claims and claim expenses is established. ULAE are expenses that cannot be associated with a specific claim but are related to claims paid or in the process of settlement, such as internal costs of the claims function, and are included in the reserve for claims and claim expenses. The determination of the ULAE provision is subject to judgment.

The Company reevaluates its actuarial reserving techniques on a periodic basis. Typically, the quarterly review procedures include reviewing paid and reported claims in the most recent reporting period, reviewing the development of paid and reported claims from prior periods, and reviewing the Company’s overall experience by underwriting year and in the aggregate. The Company monitors its expected ultimate claims and claim expense ratios and expected claims reporting assumptions on a quarterly basis and compares them to its actual experience. These actuarial assumptions are generally reviewed annually, based on input from the Company’s actuaries, underwriters, claims personnel and finance professionals, although adjustments may be made more frequently if needed. Assumption changes are made to adjust for changes in the pricing and terms of coverage the Company provides, changes in industry results for similar business, as well as its actual experience to the extent the Company has enough data to rely on its own experience. If the Company determines that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the period in which they are identified.

Incurred and Paid Claims Development and Reserving Methodology

The information provided herein about incurred and paid accident year claims development for the years ended prior to December 31, 2018 on a consolidated basis and by segment is presented as supplementary information. The Company applied a retrospective approach with respect to its acquisition of Platinum, presenting all relevant historical information for all periods presented. In addition, included in the incurred claims and claim expenses and cumulated paid claims and claim expenses tables below is a reconciling item that represents the unamortized balance of fair value adjustments recorded in connection with the acquisition of Platinum to reflect an increase in net claims and claim expenses due to the addition of a market based risk margin that represented the cost of capital required by a market participant to assume the net claims and claim expenses of Platinum.

For incurred and paid accident year claims denominated in foreign currency, the Company used the current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from the incurred and paid accident year claims development information included in the tables below.

The following table details the Company’s consolidated incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2018, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2018
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	699,400	$	634,400	$	617,015	$	577,285	$	552,059	$	530,876	$	521,723	$	516,888	$	519,585	$	521,739	$	17,510
2010	—		992,376		950,984		902,908		871,664		869,959		860,517		868,441		866,529		855,132		52,575
2011	—		—		1,646,568		1,573,930		1,493,095		1,412,886		1,384,912		1,348,620		1,334,068		1,337,445		76,002
2012	—		—		—		865,281		770,104		707,471		681,405		653,437		655,882		666,704		52,680
2013	—		—		—		—		619,414		558,746		512,389		472,270		446,311		433,363		46,050
2014	—		—		—		—		—		660,836		613,786		601,727		582,473		558,619		117,354
2015	—		—		—		—		—		—		639,151		627,702		629,211		590,591		136,328
2016	—		—		—		—		—		—		—		680,039		684,757		666,453		241,938
2017	—		—		—		—		—		—		—		—		1,895,376		1,731,295		828,815
2018	—		—		—		—		—		—		—		—		—		1,367,413		923,976
Total																			$	8,728,754	$	2,493,228

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	96,462	$	269,714	$	321,506	$	365,731	$	398,452	$	437,232	$	458,920	$	465,244	$	472,679	$	481,632
2010	—		128,276		315,357		431,562		500,974		555,252		626,094		715,191		741,629		758,762
2011	—		—		260,326		540,985		889,387		1,043,763		1,133,013		1,176,892		1,203,998		1,222,512
2012	—		—		—		166,564		266,980		357,821		417,628		461,035		525,736		551,846
2013	—		—		—		—		86,998		179,709		243,544		289,144		326,807		348,436
2014	—		—		—		—		—		111,067		200,830		268,871		317,901		357,894
2015	—		—		—		—		—		—		95,862		193,965		287,522		362,419
2016	—		—		—		—		—		—		—		79,577		217,746		324,224
2017	—		—		—		—		—		—		—		—		450,034		548,619
2018	—		—		—		—		—		—		—		—		—		389,492
Total																			$	5,345,836
Outstanding liabilities from accident year 2008 and prior, net of reinsurance																			286,863
Claims and claim expenses, net of reinsurance, from the Company's former Bermuda-based insurance operations																			368
Adjustment for unallocated claim expenses																			28,956
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			4,945
Liability for claims and claim expenses, net of reinsurance																			$	3,704,050

Property Segment

Within the Property segment, the Company principally writes property catastrophe excess of loss reinsurance contracts to insure insurance and reinsurance companies against natural and man-made catastrophes. Under these contracts, the Company indemnifies an insurer or reinsurer when its aggregate paid claims and claim expenses from a single occurrence of a covered peril exceeds the attachment point specified in the contract, up to an amount per loss specified in the contract. The Company's most significant exposure is to losses from hurricanes, earthquakes and other windstorms, although the Company is also exposed to claims arising from other catastrophes, such as tsunamis, winter storms, freezes, floods, fires, tornadoes, explosions and acts of terrorism. The Company's predominant exposure under such coverage is to property damage. However, other risks, including business interruption and other non-property losses, may also be covered under the Company's catastrophe contracts when arising from a covered peril. The Company's coverages are offered on either a worldwide basis or are limited to selected geographic areas.

Coverage can also vary from “all property” perils to limited coverage on selected perils, such as “earthquake only” coverage. The Company also enters into retrocessional contracts that provide property catastrophe coverage to other reinsurers or retrocedants. This coverage is generally in the form of excess of loss retrocessional contracts and may cover all perils and exposures on a worldwide basis or be limited in scope to selected geographic areas, perils and/or exposures. The exposures the Company assumes from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after the retrocessional coverage has been bound. The Company also offers dual trigger reinsurance contracts which require the Company to pay claims based on claims incurred by insurers and reinsurers in addition to the estimate of insured industry losses as reported by referenced statistical reporting agencies.

Also included in the Property segment is property per risk, property (re)insurance, binding facilities and regional U.S. multi-line reinsurance. The Company's predominant exposure under such coverage is to property damage. However, other risks, including business interruption and other non-property losses, may also be covered when arising from a covered peril. The Company's coverages are offered on either a worldwide basis or are limited to selected geographic areas. The exposures assumed from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after the retrocessional coverage has been bound. The Company offers these products principally through proportional coverage. In a proportional reinsurance arrangement (also referred to as quota share reinsurance or pro rata reinsurance), the reinsurer shares a proportional part of the original premiums and losses of the reinsured.

Claims and claim expenses in the Company's Property segment are generally characterized by loss events of low frequency and high severity. Initial reporting of paid and incurred claims in general, tends to be relatively prompt. The Company considers this business “short-tail” as compared to the reporting of claims for “long-tail” products, which tends to be slower. However, the timing of claims payment and reporting also varies depending on various factors, including: whether the claims arise under reinsurance of primary insurance companies or reinsurance of other reinsurance companies; the nature of the events (e.g., hurricanes, earthquakes or terrorism); the geographic area involved; post-event inflation which may cause the cost to repair damaged property to increase significantly from current estimates, or for property claims to remain open for a longer period of time, due to limitations on the supply of building materials, labor and other resources; complex policy coverage and other legal issues; and the quality of each client’s claims management and reserving practices. Management’s judgments regarding these factors are reflected in the Company's reserve for claims and claim expenses.

Reserving for most of the Company's Property segment generally does not involve the use of traditional actuarial techniques. Rather, claims and claim expense reserves are estimated by management after a catastrophe occurs by completing an in-depth analysis of the individual contracts which may potentially be impacted by the catastrophic event. The in-depth analysis generally involves: 1) estimating the size of insured industry losses from the catastrophic event; 2) reviewing reinsurance contract portfolios to identify contracts which are exposed to the catastrophic event; 3) reviewing information reported by customers and brokers; 4) discussing the event with customers and brokers; and 5) estimating the ultimate expected cost to settle all claims and administrative costs arising from the catastrophic event on a contract-by-contract basis and in aggregate for the event. Once an event has occurred, during the then current reporting period, the Company records its best estimate of the ultimate expected cost to settle all claims arising from the event. The Company's estimate of claims and claim expense reserves is then determined by deducting cumulative paid losses from its estimate of the ultimate expected loss for an event. The Company’s estimate of IBNR is determined by deducting cumulative paid losses, case reserves and additional case reserves from its estimate of the ultimate expected loss for an event. Once the Company receives a valid notice of loss or payment request under a catastrophe reinsurance contract, it is generally able to process and pay such claims promptly.

Because the events from which claims arise under policies written within the Property segment are typically prominent, public occurrences such as hurricanes and earthquakes, the Company is often able to use independent reports as part of its loss reserve estimation process. The Company also reviews catastrophe bulletins published by various statistical reporting agencies to assist in determining the size of the industry loss, although these reports may not be available for some time after an event.

For smaller events including localized severe weather events such as windstorms, hail, ice, snow, flooding, freezing and tornadoes, which are not necessarily prominent, public occurrences, the Company initially places greater reliance on catastrophe bulletins published by statistical reporting agencies to assist in determining what events occurred during the reporting period than the Company does for large events. This includes reviewing catastrophe bulletins published by Property Claim Services (“PCS”) for U.S. catastrophes. The Company sets its initial estimates of reserves for claims and claim expenses for these smaller events based on a combination of its historical market share for these types of losses and the estimate of the total insured industry property losses as reported by statistical reporting agencies, although management may make significant adjustments based on the Company's current exposure to the geographic region involved as well as the size of the loss and the peril involved. This approach supplements the Company's approach for estimating losses for larger catastrophes, which as discussed above, includes discussions with brokers and ceding companies and reviewing individual contracts impacted by the event. Approximately one year from the date of loss for these small events, the Company typically estimates IBNR for these events by using the paid Bornhuetter-Ferguson actuarial method. The loss development factors for the paid Bornhuetter-Ferguson actuarial method are selected based on a review of the Company's historical experience. There were no significant changes to the Company's paid loss development factors over the last three years.

In general, reserves for the Company's more recent reinsured catastrophic events are subject to greater uncertainty and, therefore, greater potential variability, and are likely to experience material changes from one period to the next. This is due to the uncertainty as to the size of the industry losses from the event, uncertainty as to which contracts have been exposed to the catastrophic event, uncertainty due to complex legal and coverage issues that can arise out of large or complex catastrophic events, and uncertainty as to the magnitude of claims incurred by the Company's customers. As the Company's claims age, more information becomes available and the Company believes its estimates become more certain.

The following table details the Company’s Property segment incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2018, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2018
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	219,979	$	164,369	$	145,207	$	138,747	$	134,490	$	135,245	$	134,539	$	134,811	$	134,355	$	134,876	$	74
2010	—		609,380		561,524		526,928		531,199		550,980		554,733		564,345		566,475		555,642		33,429
2011	—		—		1,264,374		1,192,868		1,141,403		1,091,415		1,070,957		1,040,721		1,036,663		1,033,601		46,427
2012	—		—		—		437,940		344,487		311,648		293,873		275,910		264,532		257,246		16,299
2013	—		—		—		—		227,268		196,729		174,335		152,715		141,197		137,660		1,971
2014	—		—		—		—		—		183,249		154,469		147,138		142,864		142,457		4,689
2015	—		—		—		—		—		—		226,039		195,164		176,159		167,916		19,347
2016	—		—		—		—		—		—		—		252,556		254,151		241,296		64,136
2017	—		—		—		—		—		—		—		—		1,342,161		1,167,013		454,395
2018	—		—		—		—		—		—		—		—		—		718,266		336,082
Total																			$	4,555,973	$	976,849

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	56,142	$	101,124	$	115,459	$	123,281	$	129,204	$	133,750	$	134,770	$	135,721	$	135,729	$	136,329
2010	—		93,423		216,504		295,243		337,060		372,499		398,691		474,179		483,738		497,547
2011	—		—		212,259		427,501		743,745		868,489		926,747		952,780		966,304		971,324
2012	—		—		—		100,057		145,098		189,199		208,653		218,638		230,839		233,647
2013	—		—		—		—		49,032		93,041		117,642		128,631		132,822		134,044
2014	—		—		—		—		—		55,090		96,074		118,768		123,790		126,897
2015	—		—		—		—		—		—		62,169		108,679		127,509		138,283
2016	—		—		—		—		—		—		—		47,491		119,260		155,917
2017	—		—		—		—		—		—		—		—		411,961		443,130
2018	—		—		—		—		—		—		—		—		—		354,616
Total																			$	3,191,734
Outstanding liabilities from accident year 2008 and prior, net of reinsurance																			4,222
Adjustment for unallocated claim expenses																			4,028
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			636
Liability for claims and claim expenses, net of reinsurance																			$	1,373,125

Casualty and Specialty Segment

The Company offers its casualty and specialty reinsurance products principally on a proportional basis, and it also provides excess of loss coverage. The Company offers casualty and specialty reinsurance products to insurance and reinsurance companies and provides coverage for specific geographic regions or on a worldwide basis. Principally all of the business is reinsurance, although from time to time, the Company writes insurance business.

As with the Company's Property segment, its Casualty and Specialty segment reinsurance contracts can include coverage for relatively large limits or exposures. As a result, the Company's casualty and specialty reinsurance business can be subject to significant claims volatility. In periods of low claims frequency or severity, the Company's results will generally be favorably impacted while in periods of high claims frequency or severity the Company's results will generally be negatively impacted.

More recently, the Company has accepted a wider range of proportional risks, facilitating the Company's efforts to expand its product offerings. While the Company remains focused on underwriting discipline, and seeks to remain focused on opportunities amenable to stochastic representation and supported by strong data and analytics, the Company's expanded casualty and specialty product suite, may pose new, unmodelled or unforeseen risks for which the Company may not be adequately compensated and may also result in a higher level of attritional claims and claim expenses and the potential for reserve development, either adverse or favorable.

The Company's processes and methodologies in respect of loss estimation for the coverages offered through its Casualty and Specialty segment differ from those used for its Property segment. For example, the Company's casualty and specialty coverages are more likely to be impacted by factors such as long-term inflation and changes in the social and legal environment, which the Company believes gives rise to greater uncertainty in its reserves for claims and claim expenses. Moreover, in many lines of business the Company does not have the benefit of a significant amount of its own historical experience and may have little or no related corporate reserving history in many of its newer or growing lines of business. The Company believes this makes its Casualty and Specialty segment reserving subject to greater uncertainty than its Property segment.

The Company calculates multiple point estimates for claims and claim expense reserves using a variety of actuarial reserving techniques for many, but not all, of its classes of business for each underwriting year within the Casualty and Specialty segment. The Company does not believe that these multiple point estimates are, or should be considered a range. Rather, the Company considers each class of business and determines the most appropriate point estimate for each underwriting year based on the characteristics of the particular class including: (1) loss development patterns derived from historical data; (2) the credibility of the selected loss development pattern; (3) the stability of the loss development patterns; (4) how developed the underwriting year is; and (5) the observed loss development of other underwriting years for the same class. The Company also considers other relevant factors, including: (1) historical ultimate loss ratios; (2) the presence of individual large losses; and (3) known occurrences that have not yet resulted in reported losses. The Company makes determinations of the most appropriate point estimate of loss for each class based on an evaluation of relevant information and do not ascribe any particular portion of the estimate to a particular factor or consideration. In addition, the Company believes that a review of individual contract information improves the loss estimates for some classes of business.

When developing claims and claims expense reserves for the Company's Casualty and Specialty segment, it considers several actuarial techniques such as the expected loss ratio method, the Bornhuetter-Ferguson actuarial method and the paid and reported chain ladder actuarial method.

For classes of business and underwriting years where the Company has limited historical claims experience, estimates of ultimate losses that are not related to a specific event are generally initially determined based on the loss ratio method applied to each underwriting year and to each class of business. Unless the Company has credible claims experience or unfavorable development, it generally selects an ultimate loss based on its initial view of the loss. The selected ultimate losses are determined by multiplying the initial expected loss ratio by the earned premium. The initial expected loss ratios are key inputs that involve management judgment and are based on a variety of factors, including: (1) contract by contract expected loss ratios developed during the Company’s pricing process; (2) historical loss ratios and combined ratios adjusted for rate change and trend; and (3) industry benchmarks for similar business. These judgments take into account management’s view of past, current and future factors that may influence ultimate losses, including: (1) market conditions; (2) changes in the business underwritten; (3) changes in timing of the emergence of claims; and (4) other factors that may influence ultimate loss ratios and losses.

The determination of when reported losses are sufficient and credible to warrant selection of an ultimate loss ratio different from the initial expected loss ratios also requires judgment. The Company generally makes adjustments for reported loss experience indicating unfavorable variances from initial expected loss ratios sooner than reported loss experience indicating favorable variances. This is because the reporting of losses in excess of expectations tends to have greater credibility than an absence or lower than expected level of reported losses. Over time, as a greater number of claims are reported and the credibility of reported losses improves, actuarial estimates of IBNR are typically based on the Bornhuetter-Ferguson actuarial method or the reported chain ladder actuarial method.

The Bornhuetter-Ferguson method allows for greater weight to be applied to expected results in periods where little or no actual experience is available, and, hence, is less susceptible to the potential pitfall of being excessively swayed by one year or one quarter of actual paid and/or reported loss data, compared to the chain ladder actuarial method. The Bornhuetter-Ferguson method uses the initial expected loss ratio to estimate IBNR, and it assumes that past experience is not fully representative of the future. As the Company’s reserves for claims and claim expenses age, and actual claims experience becomes available, this method places less weight on expected experience and places more weight on actual experience. This experience, which represents the difference between expected reported claims and actual reported claims, is reflected in the respective reporting period as a change in estimate. The utilization of the Bornhuetter-Ferguson method requires the Company to estimate an expected ultimate claims and claim expense ratio and select an expected loss reporting pattern. The Company selects its estimates of the expected ultimate claims and claim expense ratios as described above and selects its expected loss reporting patterns by utilizing actuarial analysis, including management’s judgment, and historical patterns of paid losses and reporting of case reserves to the Company, as well as industry loss development patterns. The estimated expected claims and claim expense ratio may be modified to the extent that reported losses at a given point in time differ from what would be expected based on the selected loss reporting pattern.

The reported chain ladder actuarial method utilizes actual reported losses and a loss development pattern to determine an estimate of ultimate losses that is independent of the initial expected ultimate loss ratio and earned premium. The Company believes this technique is most appropriate when there are a large number of reported losses with significant statistical credibility and a relatively stable loss development pattern. Information that may cause future loss development patterns to differ from historical loss development patterns is considered and reflected in the Company’s selected loss development patterns as appropriate. For certain reinsurance contracts, historical loss development patterns may be developed from ceding company data or other sources.

In addition, certain specialty coverages may be impacted by natural and man-made catastrophes. The Company estimates reserves for claim and claim expenses for these losses after the event giving rise to these losses occurs, following a process that is similar to its Property segment described above.

The following table details the Company’s Casualty and Specialty segment incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2018, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2018
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	479,421	$	470,031	$	471,808	$	438,538	$	417,569	$	395,631	$	387,184	$	382,077	$	385,230	$	386,863	$	17,436
2010	—		382,996		389,460		375,980		340,465		318,979		305,784		304,096		300,054		299,490		19,146
2011	—		—		382,194		381,062		351,692		321,471		313,955		307,899		297,405		303,844		29,575
2012	—		—		—		427,341		425,617		395,823		387,532		377,527		391,350		409,458		36,381
2013	—		—		—		—		392,146		362,017		338,054		319,555		305,114		295,703		44,079
2014	—		—		—		—		—		477,587		459,317		454,589		439,609		416,162		112,665
2015	—		—		—		—		—		—		413,112		432,538		453,052		422,675		116,981
2016	—		—		—		—		—		—		—		427,483		430,606		425,157		177,802
2017	—		—		—		—		—		—		—		—		553,215		564,282		374,420
2018	—		—		—		—		—		—		—		—		—		649,147		587,894
Total																			$	4,172,781	$	1,516,379

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2009	$	40,320	$	168,590	$	206,047	$	242,450	$	269,248	$	303,482	$	324,150	$	329,523	$	336,950	$	345,303
2010	—		34,853		98,853		136,319		163,914		182,753		227,403		241,012		257,891		261,215
2011	—		—		48,067		113,484		145,642		175,274		206,266		224,112		237,694		251,188
2012	—		—		—		66,507		121,882		168,622		208,975		242,397		294,897		318,199
2013	—		—		—		—		37,966		86,668		125,902		160,513		193,985		214,392
2014	—		—		—		—		—		55,977		104,756		150,103		194,111		230,997
2015	—		—		—		—		—		—		33,693		85,286		160,013		224,136
2016	—		—		—		—		—		—		—		32,086		98,486		168,307
2017	—		—		—		—		—		—		—		—		38,073		105,489
2018	—		—		—		—		—		—		—		—		—		34,876
Total																			$	2,154,102
Outstanding liabilities from accident year 2008 and prior, net of reinsurance																			282,641
Adjustment for unallocated claim expenses																			24,928
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			4,309
Liability for claims and claim expenses, net of reinsurance																			$	2,330,557

Prior Year Development of the Reserve for Net Claims and Claim Expenses

The Company’s estimates of claims and claim expense reserves are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of the Company’s reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer’s estimate at a point in time of its ultimate liability, and because there are numerous factors that affect reserves and claims payments that cannot be determined with certainty in advance, the Company’s ultimate payments will vary, perhaps materially, from its estimates of reserves. If the Company determines in a subsequent period that adjustments to its previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. On a net basis, the Company’s cumulative favorable or unfavorable development is generally reduced by offsetting changes in its reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums and redeemable noncontrolling interest for changes in claims and claim expenses that impact DaVinciRe, all of which generally move in the opposite direction to changes in the Company’s ultimate claims and claim expenses.

The following table details the Company’s prior year development by segment of its liability for unpaid claims and claim expenses:




Year ended December 31,	2018			2017			2016
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Property	$	(221,290	)	$	(45,596	)	$	(104,876	)
Casualty and Specialty	(49,262		)	6,183			(58,140		)
Other	(197		)	(1,583		)	(1,110		)
Total favorable development of prior accident years net claims and claim expenses	$	(270,749	)	$	(40,996	)	$	(164,126	)

Changes to prior year estimated claims reserves increased the Company’s net income by $270.7 million during 2018 (2017 - decreased the Company’s net loss by $41.0 million, 2016 - increased the Company’s net income by $164.1 million), excluding the consideration of changes in reinstatement, adjustment or other premium changes, profit commissions, redeemable noncontrolling interest - DaVinciRe and income tax.

Property Segment

The following tables and discussion detail the development of the Company’s liability for unpaid claims and claim expenses for its Property segment, allocated between large and small catastrophe net claims and claim expenses and attritional net claims and claim expenses, included in the other line item:




Year ended December 31,	2018
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
2017 Large Loss Events	$	(172,512	)
Other	(9,517		)
Total large catastrophe events	(182,029		)
Small catastrophe events and attritional loss movements
Other small catastrophe events and attritional loss movements	(33,579		)
Total small catastrophe events and attritional loss movements	(33,579		)
Total catastrophe and attritional net claims and claim expenses	(215,608		)
Actuarial assumption changes	(5,682		)
Total net favorable development of prior accident years net claims and claim expenses	$	(221,290	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2018 of $221.3 million was comprised of net favorable development of $182.0 million related to large catastrophe events, net favorable development of $33.6 million related to small catastrophe events and attritional loss movements and $5.7 million of net favorable development associated with actuarial assumption changes. Included in net favorable development of prior accident years net claims and claim expenses from large events was $172.5 million of net decreases in the estimated ultimate losses associated with Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake, the wildfires in California during the fourth quarter of 2017 and certain losses associated with aggregate loss contracts (collectively, the “2017 Large Loss Events”). The Company’s Property segment also experienced net favorable development of $33.6 million associated with a number of other small catastrophe events as well as attritional loss movements related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods.




Year ended December 31,	2017
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
Storm Sandy (2012)	$	(4,395	)
April and May U.S. Tornadoes (2011)	(4,177		)
New Zealand Earthquake (2010)	4,061
New Zealand Earthquake (2011)	5,807
Other	(8,936		)
Total large catastrophe events	(7,640		)
Small catastrophe events and attritional loss movements
Tianjin Explosion (2015)	(8,002		)
Fort McMurray Wildfire (2016)	(6,364		)
Other small catastrophe events and attritional loss movements	(24,432		)
Total small catastrophe events and attritional loss movements	(38,798		)
Total catastrophe and attritional net claims and claim expenses	(46,438		)
Actuarial assumption changes	842
Total net favorable development of prior accident years net claims and claim expenses	$	(45,596	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2017 of $45.6 million was comprised of net favorable development of $7.6 million related to large catastrophe events, net favorable development of $38.8 million related to small catastrophe events and attritional loss movements and $0.8 million of adverse development associated with actuarial assumption changes. Included in net favorable development of prior accident years net claims and claim expenses from large events was a number of relatively small net decreases in the estimated ultimate losses associated with a number of events from prior accident years. Included in net favorable development of prior accident years net claims and claims expenses from small events and attritional loss movements was a reduction in the estimated ultimate losses associated with a number of small catastrophes and attritional loss movements of $24.4 million, the 2015 Tianjin Explosion of $8.0 million and the 2016 Fort McMurray Wildfire of $6.4 million.




Year ended December 31,	2016
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
Thailand Floods (2011)	$	(15,131	)
Storm Sandy (2012)	(10,849		)
Tohoku Earthquake and Tsunami (2011)	(7,314		)
New Zealand Earthquake (2011)	1,987
New Zealand Earthquake (2010)	6,904
Other	(9,523		)
Total large catastrophe events	(33,926		)
Small catastrophe events and attritional loss movements
Tianjin Explosion (2015)	(5,686		)
Other small catastrophe events and attritional loss movements	(65,264		)
Total small catastrophe events and attritional loss movements	(70,950		)
Total catastrophe and attritional net claims and claim expenses	(104,876		)
Total net favorable development of prior accident years net claims and claim expenses	$	(104,876	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2016 of $104.9 million was principally driven by $33.9 million and $71.0 million related to large catastrophe events and small catastrophe events and attritional loss movements, respectively. Included in the net favorable development of prior accident years net claims and claim expenses associated with large catastrophes was favorable development of $15.1 million from the 2011 Thailand Floods, $10.8 million from Storm Sandy in 2012, $7.3 million from the 2011 Tohoku Earthquake and Tsunami, partially offset by adverse development of $6.9 million and $2.0 million related to the 2010 and 2011 New Zealand Earthquakes, respectively, each principally the result of changes in estimated ultimate losses for each respective event. Included in the favorable development of prior accident years net claims and claim expenses related to small catastrophe events and attritional loss movements were a number of wind and thunderstorm events, primarily from the 2013 and 2015 accident years, and $5.7 million associated with the 2015 Tianjin Explosion, each principally the result of changes in estimated ultimate losses for each respective event, with the remainder due to a number of other large and small catastrophe events related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods.

Casualty and Specialty Segment

The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Casualty and Specialty segment:




Year ended December 31,	2018			2017			2016
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Actuarial methods - actual reported claims less than expected claims	$	(41,476	)	$	(24,836	)	$	(52,601	)
Ogden Rate change	—			33,481			—
Actuarial assumption changes	(7,786		)	(2,462		)	(5,539		)
Total (favorable) adverse development of prior accident years net claims and claim expenses	$	(49,262	)	$	6,183		$	(58,140	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2018 of $49.3 million was driven by reported losses generally coming in lower than expected on attritional net claims and claim expenses and certain assumption changes across a number of lines of business.

The net adverse development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2017 of $6.2 million was driven by $33.5 million of adverse development associated with the change in the discount rate used to calculate lump sum awards in U.K. bodily injury cases (the “Ogden Rate”), from 2.5%, to minus 0.75%. Notwithstanding the impact of the Ogden Rate change was $24.8 million of net favorable development in 2017 related to actual reported losses coming in lower than expected on attritional net claims and claim expenses across a number of lines of business and $2.5 million of net favorable development associated with actuarial assumption changes.

The net favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2016 of $58.1 million was driven by $52.6 million related to the application of the Company’s formulaic actuarial reserving methodology with attritional net claims and claim expenses reported coming in lower than expected on prior accident years events and $5.5 million of net favorable development associated with actuarial assumption changes.

Other

The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Other category:




Year ended December 31,	2018			2017			2016
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Other	$	(197	)	$	(1,583	)	$	(1,110	)

The Company’s Other category experienced net favorable development on prior accident years net claims and claim expenses of $0.2 million in 2018 (2017 - $1.6 million; 2016 - $1.1 million).

Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Reserve for Claims and Claim Expenses

The reconciliation of the net incurred and paid claims development tables to the reserve for claims and claim expenses in the consolidated balance sheet is as follows:




At December 31, 2018
Net reserve for claims and claim expenses
Property	$	1,373,125
Casualty and Specialty	2,330,557
Other	368
Total net reserve for claims and claim expenses	3,704,050

Reinsurance recoverable
Property	$	1,713,129
Casualty and Specialty	654,836
Other	4,256
Total reinsurance recoverable	2,372,221
Total gross reserve for claims and claim expenses	$	6,076,271

Historical Claims Duration

The following is unaudited supplementary information about average historical claims duration by segment:




	Average annual percentage payout of incurred claims by age, net of reinsurance (number of years)
At December 31, 2018	1		2		3		4		5		6		7		8		9		10
Property	31.7	%	17.3	%	20.8	%	9.1	%	5.2	%	3.3	%	4.7	%	0.9	%	2.0	%	0.4	%
Casualty and Specialty	10.1	%	16.9	%	12.9	%	10.9	%	8.5	%	10.0	%	5.1	%	3.6	%	1.6	%	2.2	%

Claims Frequency

Each of the Company’s reportable segments are broadly considered to be assumed reinsurance, where multiple claims are often aggregated, perhaps multiple times through retrocessional reinsurance, before ultimately being ceded to the Company. In addition, the nature, size, terms and conditions of contracts entered into by the Company changes from one accident year to the next and the quantum of contractual or policy limits, and accordingly the potential amount of claims and claim expenses associated with a reported claim, can range from nominal, to significant. These factors can impact the amount and timing of the claims and claim expenses to be recorded and accordingly, developing claim frequency information is highly subjective and is not prepared or utilized for internal purposes. In addition, the Company does not have direct access to claim frequency information underlying certain of its proportional contracts given the nature of that business. As a result, the Company does not believe providing claim frequency information is practicable as it relates to its proportional contracts.

Notwithstanding the factors noted above, the Company has developed claims frequency information associated with its excess of loss reinsurance contracts. As each accident year develops, the Company would expect the cumulative number of reported claims to increase in certain of its excess of loss reinsurance contracts, most notably in its Casualty and Specialty segment. In determining claims frequency for its excess of loss reinsurance contracts, the Company has made the following assumptions:


•	Claims below the insured layer of a contract are excluded;


•	If an insured loss event results in claims associated with a number of layers of a contract, the Company would consider this to be a single claim; and


•	If an insured loss event results in claims associated with a number of the Company's operating subsidiaries, the Company considers each operating subsidiary to have a reported claim.

The following table details the Company's cumulative number of reported claims for its excess of loss reinsurance contracts allocated by segment:




	At December 31, 2018
	Cumulative number of reported claims
Accident Year	Property	Casualty and Specialty
2009	743	1,132
2010	787	1,081
2011	1,186	1,411
2012	679	1,448
2013	629	1,557
2014	553	2,040
2015	606	1,992
2016	845	1,650
2017	1,812	1,028
2018	1,014	277

Assumed Reinsurance Contracts Classified As Deposit Contracts

Net claims and claim expenses incurred were reduced by $0.2 million during 2018 (2017 – $0.2 million, 2016 – $0.2 million) related to income earned on assumed reinsurance contracts that were classified as deposit contracts with underwriting risk only. Other income was increased by $11.2 million during 2018 (2017 – $3.7 million, 2016 – $6.2 million) related to premiums and losses incurred on assumed reinsurance contracts that were classified as deposit contracts with timing risk only. Aggregate deposit liabilities of $10.3 million are included in reinsurance balances payable at December 31, 2018 (2017 – $21.7 million) and aggregate deposit assets of $Nil are included in other assets at December 31, 2018 (2017 – $Nil) associated with these contracts.