3. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE

Reserves for losses and LAE.

Activity in the reserve for losses and LAE is summarized for the periods indicated:


	At December 31,
(Dollars in thousands)	2015			2014			2013
Gross reserves at January 1	$	9,720,813		$	9,673,240		$	10,069,055
Less reinsurance recoverables		(627,082	)		(473,866	)		(602,750	)
Net reserves at January 1		9,093,731			9,199,374			9,466,305

Incurred related to:
Current year		3,170,482			2,946,396			2,818,490
Prior years		(68,567	)		(39,862	)		(18,239	)
Total incurred losses and LAE		3,101,915			2,906,534			2,800,251

Paid related to:
Current year		697,778			761,788			664,719
Prior years		2,186,274			2,089,734			2,353,817
Total paid losses and LAE		2,884,052			2,851,522			3,018,536

Foreign exchange/translation adjustment		(190,032	)		(160,655	)		(48,646	)

Net reserves at December 31		9,121,562			9,093,731			9,199,374
Plus reinsurance recoverables		830,236			627,082			473,866
Gross reserves at December 31	$	9,951,798		$	9,720,813		$	9,673,240

Incurred prior years' reserves decreased by $68,567 thousand, $39,862 thousand and $18,239 thousand for the years ended December 31, 2015, 2014 and 2013, respectively. The decrease for 2015 was attributable to favorable development in the reinsurance segments of $217,169 thousand related to treaty casualty and treaty property reserves and $3,539 thousand of favorable development related to Mt. Logan reserves, partially offset by $152,140 thousand of unfavorable development in the insurance segment primarily related to umbrella and construction liability business.

The decrease for 2014 was attributable to favorable development in the reinsurance segments of $202,418 thousand related to treaty casualty, treaty property and catastrophe reserves, partially offset by $137,769 thousand development on A&E reserves and $186 thousand of favorable development related to Mt. Logan reserves and $24,973 thousand of unfavorable development in the insurance segment primarily related to construction liability and umbrella business.

The decrease for 2013 was attributable to a $148,788 thousand decrease in reinsurance business, primarily related to favorable development on treaty property reserves, partially offset by a $130,548 thousand increase in insurance business, primarily related to development on contractors' liability, umbrella and workers compensation reserves.

The Company continues to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.

The Company's reserves include an estimate of the Company's ultimate liability for A&E claims. The Company's A&E liabilities emanate from Mt. McKinley's direct insurance business and Everest Re's assumed reinsurance business. All of the contracts of insurance and reinsurance under which the Company has received claims during the past three years expired more than 20 years ago. There are significant uncertainties surrounding the Company's reserves for its A&E losses.

A&E exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes incurred losses with respect to A&E reserves on both a gross and net of reinsurance basis for the periods indicated:


	At December 31,
(Dollars in thousands)	2015			2014			2013
Gross basis:
Beginning of period reserves	$	476,205		$	402,461		$	442,821
Incurred losses		40,000			142,233			5,599
Paid losses		(83,088	)		(68,489	)		(45,959	)
End of period reserves	$	433,117		$	476,205		$	402,461

Net basis:
Beginning of period reserves	$	458,211		$	386,677		$	425,691
Incurred losses		38,440			137,769			5,400
Paid losses		(177,031	)		(66,235	)		(44,414	)
End of period reserves	$	319,620		$	458,211		$	386,677

On July 13, 2015, the Company sold Mt. McKinley, a Delaware domiciled insurance company and wholly-owned subsidiary of the Company to Clearwater Insurance Company, a Delaware domiciled insurance company. Concurrently with the closing, the Company entered into a retrocession treaty with an affiliate of Clearwater Insurance Company. Per the retrocession treaty, the Company retroceded 100% of the liabilities associated with certain Mt. McKinley policies, which related entirely to A&E business and had been reinsured by Bermuda Re. As consideration for entering into the retrocession treaty, Everest Re Bermuda transferred cash of $140,279 thousand, an amount equal to the net loss reserves as of the closing date. The maximum liability retroceded under the retrocession treaty will be $440,279 thousand, equal to the retrocession payment plus $300,000 thousand. The Company will retain liability for any amounts exceeding the maximum liability retroceded under the retrocession treaty.

Reinsurance Receivables.

Reinsurance receivables for both paid and recoverable on unpaid losses totaled $840,420 thousand at December 31, 2015 and $670,854 thousand at December 31, 2014. At December 31, 2015, $194,231 thousand, or 23.1%, was receivable from Resolution Group Reinsurance (Barbados) Limited ("Resolution Group"); $104,819 thousand, or 12.5%, was receivable from C.V. Starr (Bermuda) ("C.V. Starr"); $88,136 thousand, or 10.5%, was receivable from Zurich Vericherungs Gesellschaft ("Zurich"); $49,478 thousand, or 5.9% was receivable from Axis Reinsurance Company ("Axis"); $46,588 thousand, or 5.5%, was receivable from Hannover Rueck SE ("Hannover") and $43,992 thousand, or 5.2%, was receivable from Transatlantic Reinsurance Company ("Transatlantic"). The receivables from Resolution Group and C.V. Starr are fully collateralized by individual trust agreements. No other retrocessionaire accounted for more than 5% of our receivables.

Future Policy Benefit Reserve.

Activity in the reserve for future policy benefits is summarized for the periods indicated:


	At December 31,
(Dollars in thousands)	2015			2014			2013
Balance at beginning of year	$	59,820		$	59,512		$	66,107
Liabilities assumed		315			250			103
Adjustments to reserves		2,310			4,724			(3,066	)
Benefits paid in the current year		(3,535	)		(4,667	)		(3,632	)
Balance at end of year	$	58,910		$	59,820		$	59,512

(Some amounts may not reconcile due to rounding.)