10.

Loss and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances, net of related amounts recoverable from reinsurers, for 2013, 2012 and 2011:


	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Reserves for loss and loss adjustment expenses (“LAE”)	$	570,450	$	538,214	$	532,204
Less amounts recoverable from reinsurers on unpaid loss and LAE		55,190		60,937		65,536

Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at beginning of year		515,260		477,277		466,668
Add:
Provision for loss and LAE for claims occurring in the current year, net of reinsurance		241,584		222,393		196,269
Change in estimated loss and LAE for claims occurring in prior years, net of reinsurance		(12,611)		(2,490)		(6,563)

Incurred losses during the current year, net of reinsurance		228,973		219,903		189,706
Less loss and LAE payments for claims, net of reinsurance, occurring during:
Current year		44,474		50,423		53,213
Prior years		133,901		131,497		125,884

		178,375		181,920		179,097

Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at end of year		565,858		515,260		477,277
Add amounts recoverable from reinsurers on unpaid loss and LAE		48,699		55,190		60,937

Reserves for loss and LAE	$	614,557	$	570,450	$	538,214

The foregoing reconciliation reflects favorable development of the net reserves at December 31, 2013, 2012, and 2011. The favorable development reduced loss and loss adjustment expense incurred by $12.6 million in 2013 driven primarily by 2008, 2009 and 2010 of $2.3 million, $3.9 million and $3.1 million, respectively. In 2012 and 2011, the Company recorded favorable development of $2.5 million and $6.6 million, respectively. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled.

Reserves established for workers’ compensation insurance have included the exposure to occupational disease or accidents related to asbestos or environmental claims. The exposure to asbestos claims emanate from the direct sale of workers’ compensation insurance. These claims resulted from industry workers who were exposed to tremolite asbestos dust and electricians and carpenters who were exposed to products that contained asbestos. There has been no known exposure to asbestos claims arising from assumed business. The emergence of these claims is slow and highly unpredictable. The Company estimates full impact of the asbestos exposure by establishing full case basis reserves on all known losses. Reserves for losses incurred but not reported (IBNR) include a provision for development of reserves on reported losses. Reserves are established for loss adjustment expenses (LAE) associated with these case and IBNR loss reserves.

The following table details our exposures to various asbestos related claims:


	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Reserves for loss and LAE at beginning of year	$	167	$	—	$	—
Incurred losses and LAE during the current year		53		168		—
Less loss and LAE payments for claims occurring during the current year		1		1		—

Reserves for loss and LAE at end of year	$	219	$	167	$	—

The Company has historically written general liability coverages that are reported in other liability lines of business. These coverages may be associated with the property and casualty’s industry exposure to environmental claims. However, the Company has not been notified by any insured for which exposure exists due to these types of claims. Company management believes potential exposure to environmental claims to be remote. Therefore, the Company has no loss or loss adjustment expense reserves for such liabilities.

The anticipated effect of inflation is implicitly considered when estimating liabilities for loss and loss adjustment expenses. Average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions and general economic trends. These anticipated trends are monitored based on actual development and are modified if necessary.