RESERVE FOR CLAIMS AND CLAIM EXPENSES

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.

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




At September 30, 2017	Case Reserves		Additional Case Reserves		IBNR		Total
Property	$	310,871	$	416,758	$	1,917,573	$	2,645,202
Casualty and Specialty	655,328		132,755		1,734,475		2,522,558
Other	9,904		—		14,649		24,553
Total	$	976,103	$	549,513	$	3,666,697	$	5,192,313

At December 31, 2016
Property	$	214,954	$	186,308	$	226,512	$	627,774
Casualty and Specialty	591,705		105,419		1,498,002		2,195,126
Other	6,935		—		18,459		25,394
Total	$	813,594	$	291,727	$	1,742,973	$	2,848,294

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




Nine months ended September 30,	2017			2016
Net reserves as of January 1	$	2,568,730		$	2,632,519
Net incurred related to:
Current year	1,561,027			483,574
Prior years	(3,663		)	(76,644		)
Total net incurred	1,557,364			406,930
Net paid related to:
Current year	158,685			39,971
Prior years	396,411			391,047
Total net paid	555,096			431,018
Foreign exchange	33,011			11,899
Net reserves as of September 30	3,604,009			2,620,330
Reinsurance recoverable as of September 30	1,588,304			240,769
Gross reserves as of September 30	$	5,192,313		$	2,861,099

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:




Nine months ended September 30,	2017			2016
	(Favorable) adverse development			(Favorable) adverse development
Property	$	(16,968	)	$	(37,512	)
Casualty and Specialty	14,015			(38,327		)
Other	(710		)	(805		)
Total favorable development of prior accident years net claims and claim expenses	$	(3,663	)	$	(76,644	)

Changes to prior year estimated claims reserves decreased the Company’s net loss by $3.7 million during the nine months ended September 30, 2017, (2016 - increased the Company’s net income by $76.6 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 table details 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:




Nine months ended September 30,	2017			2016
	(Favorable) adverse development			(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
April and May U.S. Tornadoes (2011)	$	(4,163	)	$	(3,396	)
Tohoku Earthquake and Tsunami (2011)	—			(5,894		)
New Zealand Earthquake (2010)	5,001			8,710
New Zealand Earthquake (2011)	5,807			—
Other	(3,881		)	(7,435		)
Total large catastrophe events	2,764			(8,015		)
Small catastrophe events
Fort McMurray Wildfire (2016)	(6,386		)	—
Tianjin Explosion (2015)	(4,896		)	(6,163		)
Other	(9,293		)	(23,334		)
Total small catastrophe events	(20,575		)	(29,497		)
Total catastrophe net claims and claim expenses	(17,811		)	(37,512		)
Actuarial assumption changes	843			—
Total net favorable development of prior accident years net claims and claim expenses	$	(16,968	)	$	(37,512	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in the nine months ended September 30, 2017 of $17.0 million was comprised of net adverse development of $2.8 million related to large catastrophe events, net favorable development of $20.6 million related to small catastrophe events and $0.8 million of adverse development associated with actuarial assumption changes. Included in net adverse development of prior accident years net claims and claim expenses from large events was adverse development of $5.8 million related to the 2011 New Zealand Earthquake and $5.0 million related to the 2010 New Zealand Earthquake due to increases in the estimated expected losses associated with these events. Partially offsetting these events was favorable development of $4.2 million and $3.9 million related to the 2011 April and May U.S. Tornadoes and a number of other events, respectively, due to reductions in the estimated ultimate losses associated with these events. Included in net favorable development of prior accident years net claims and claims expenses from small events was a reduction in the estimated ultimate losses associated with the 2016 Fort McMurray Wildfire of $6.4 million and the 2015 Tianjin Explosion of $4.9 million. In addition, the Company’s Property segment experienced net favorable development of $9.3 million associated with a number of other small catastrophe events.

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in the nine months ended September 30, 2016 of $37.5 million was principally comprised of net favorable development of $29.5 million associated with small catastrophe events related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods. In addition, the Company experienced net favorable development of $8.0 million from large catastrophe events due principally to a decrease in the estimated ultimate losses for the 2011 Tohoku Earthquake and the April and May 2011 Tornadoes of $5.9 million and $3.4 million, respectively, and net favorable development of $7.4 million associated with a number of other large catastrophe events. Partially offsetting this net favorable development of large catastrophe events was an increase in the estimated ultimate losses for the 2010 New Zealand Earthquake of $8.7 million. In addition, the Company’s Property segment experienced net favorable development due to reductions in the estimated ultimate losses from the 2015 Tianjin Explosion of $6.2 million and net favorable development of $23.3 million associated with a number of other small catastrophe events.

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:




Nine months ended September 30,	2017			2016
	(Favorable) adverse development			(Favorable) adverse development
Actuarial methods - actual reported claims lower than expected claims	$	(17,004	)	$	(32,209	)
Ogden Rate change	33,481			—
Actuarial assumption changes	(2,462		)	(6,118		)
Total adverse (favorable) development of prior accident years net claims and claim expenses	$	14,015		$	(38,327	)

The net adverse development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in the nine months ended September 30, 2017 of $14.0 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%. Offsetting the adverse development due to the impact of the Ogden Rate change was $17.0 million of net favorable development in the first nine months of 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 the nine months ended September 30, 2016 of $38.3 million was driven by $32.2 million of favorable development related to actual reported net claims and claim expenses coming in lower than expected on prior accident years events and $6.1 million of favorable development associated with actuarial assumption changes.