12. Liabilities for Outstanding Claims, Losses and Loss Adjustment Expenses

Reserve Rollforward and Prior Year Development

The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in results of operations as adjustments to losses and LAE. Often these adjustments are recognized in periods subsequent to the period in which the underlying policy was written and loss event occurred. These types of subsequent adjustments are described as “prior years’ loss reserves”. Such development can be either favorable or unfavorable to the Company’s financial results and may vary by line of business. In this section, all amounts presented include catastrophe losses and LAE, unless otherwise indicated.

The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.

	Nine Months Ended
	September 30,
(in millions)	2018			2017
Gross loss and LAE reserves, beginning of period	$	5,058.5		$	4,660.0
Reinsurance recoverable on unpaid losses		1,455.0			1,349.2
Net loss and LAE reserves, beginning of period		3,603.5			3,310.8
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,025.6			1,938.5
Prior years		(7.1	)		(0.3	)
Total incurred losses and LAE		2,018.5			1,938.2
Net payments of losses and LAE in respect of losses occurring in:
Current year		848.6			828.3
Prior years		997.3			859.8
Total payments		1,845.9			1,688.1
Net reserve for losses and LAE, end of period		3,776.1			3,560.9
Reinsurance recoverable on unpaid losses		1,412.8			1,374.2
Gross reserve for losses and LAE, end of period	$	5,188.9		$	4,935.1

As a result of continuing trends in the Company’s business, reserves including catastrophes have been re-estimated for all prior accident years and were decreased by $7.1 million in 2018 in comparison to a decrease of $0.3 million in 2017.

2018

For the nine months ended September 30, 2018, net favorable loss and LAE development was $7.1 million, primarily as a result of favorable catastrophe development related to the 2017 hurricanes and California wildfires. In addition, lower than expected losses in workers’ compensation of $14.2 million and other commercial lines of $14.0 million was partially offset by higher than expected losses in our commercial and personal automobile lines of $22.8 million and, to a lesser extent, in our homeowners line. Within other commercial lines, lower than expected losses in our professional and management liability and monoline general liability lines was partially offset by higher than expected losses in AIX programs and business classes which have been terminated.

2017

For the nine months ended September 30, 2017, net favorable loss and LAE development was $0.3 million, primarily as a result of favorable catastrophe development related to the 2016 hurricane Matthew.