The Company maintains loss reserves to cover its estimated liability for unpaid losses and loss adjustment expenses, including legal and other fees and a portion of the Company's general expenses, for reported and unreported claims incurred as of the end of each accounting period. These loss reserves are based on actuarial assumptions and are maintained at levels that are in accordance with U.S. GAAP. Many factors could affect these reserves, including economic and social conditions, inflation, healthcare costs, changes in doctrines of legal liability and damage awards in litigation. Therefore, the Company's reserves are necessarily based on estimates, assumptions and analysis of historical experience. The Company's results depend upon the variation between actual claims experience and the assumptions used in determining reserves and pricing products. Reserve assumptions and estimates require significant judgment and, therefore are inherently uncertain. The Company cannot determine with precision the ultimate amounts that will be paid for actual claims or the timing of those payments.

Reserves are based on approved actuarial methods, but necessarily include assumptions about expenses, mortality, morbidity, lapse rates and future yield on related investments.

All of the Company's short-duration contracts are generated from its accident and health business, and are accounted for based on actuarial estimates of the amount of loss inherent in that period's claims, including losses incurred for which claims have not been reported. Short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events.

Changes in the liability for policy benefits and claims for the years ended December 31, 2013 and 2012 are summarized below (in thousands).

		Year Ended
		December 31,
		2013		2012

Balance at a beginning of period	$	24,993	$	21,030
Less: reinsurance recoverables		1,486		2,715
Net balance at beginning of period		23,507		18,315
Amount incurred:
Current year		86,948		56,652
Prior years		169		197
Total		87,117		56,849
Amount paid, related to:
Current year		55,623		34,461
Prior years		21,055		17,196
Total		76,678		51,657
Net balance at end of period		33,946		23,507

Plus: reinsurance recoverables		1,306		1,486
Balance at end of period	$	35,252	$	24,993

The preceding schedule reflects (i) due and unpaid claims, (ii) claims in the course of settlement, (iii) estimated incurred but not reported reserves and (iv) the present value of amounts not yet due on claims. The incurred and paid data above reflects all activity for the year. The amount incurred in 2013 for prior years of $169,000 is a result of a deficiency of $465,000 of medical stop-loss reserves, offset by a redundancy of $5,000 of fully insured health reserves and $291,000 of DBL reserves. The amount incurred in 2012 for prior years of $197,000 is a result of a deficiency of $457,000 of medical stop-loss reserves, offset by a redundancy of $29,000 of fully insured health reserves and $231,000 of DBL reserves. Fluctuations are generally the result of on-going analysis of recent loss development trends.

Medical stop-loss business is excess coverage with a short duration. Predicting ultimate claims and estimating reserves in medical stop-loss is especially complicated due to the “excess of loss” nature of these products with very high deductibles applying to specific claims on any individual claimant and in the aggregate for a given group. Fluctuations in results for specific coverage are primarily due to the severity and frequency of individual claims. Due to the short-term nature of medical stop-loss, redundancies and deficiencies will typically emerge during the following year rather than over a number of years.