NOTE 8. Reserve for Known and Incurred But Not Reported Claims:

Activity in the reserve for known and incurred but not reported claims is summarized as follows:

	December 31,
	2016		2015			2014
	(in thousands)
Balance at beginning of year	$	983,880	$	1,011,780		$	1,018,365
Provision related to:
Current year		441,228		395,459			383,181
Prior years		47,373		95,633			66,842
		488,601		491,092			450,023
Payments, net of recoveries, related to:
Current year		223,735		209,845			196,656
Prior years		239,264		266,647			273,094
		462,999		476,492			469,750
Other		16,381		(42,500	)		13,142
Balance at end of year	$	1,025,863	$	983,880		$	1,011,780

Current year payments include $211.3 million, $198.6 million and $174.4 million in 2016, 2015 and 2014, respectively, that primarily relate to the Company’s specialty insurance segment. Prior year payments, net of recoveries, include $41.4 million, $23.1 million and $23.2 million in 2016, 2015 and 2014, respectively, that relate to the Company’s specialty insurance segment.

“Other” primarily includes foreign currency translation gains and losses, assets acquired in connection with claim settlements, and recoveries. Included for the year ended December 31, 2015, are recoveries of $23.8 million on reinsured losses related to a large commercial title claim. Payments and recoveries on reinsured losses for the Company’s title insurance and property and casualty businesses were immaterial during the years ended December 31, 2016 and 2014.

The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was 5.5%, 6.6% and 7.1% for the years ended December 31, 2016, 2015 and 2014, respectively.

The current year rate of 5.5% reflects an ultimate loss rate of 4.5% for the current policy year and a $42.6 million net increase in loss reserve estimates for prior policy years. The increase in loss reserve estimates for prior policy years was primarily attributable to potential uncertainty with respect to the Company’s exposure to large title claims. A large title claim is defined as a title claim with a total ultimate loss in excess of $2.5 million. This uncertainty is due to the following factors, among others: (i) the volatility associated with the timing and severity of large title claims, (ii) the potential of incurring one or more large title claims that significantly exceed estimated ultimate losses indicated by current historical trends, and (iii) the complexity associated with handling large title claims which makes it difficult to estimate the ultimate outcome. While the Company believes its claims reserve attributable to large title claims is reasonable, this uncertainty increases the potential for adverse loss development.

As of December 31, 2016, the IBNR claims reserve for the title insurance and services segment was $888.1 million, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $718.5 million to $938.3 million. The range limits are $169.6 million below and $50.2 million above management’s best estimate, respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve. Actuarial estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.

The prior year rate of 6.6% reflected an ultimate loss rate of 4.2% for policy year 2015 and a $93.1 million net increase in loss reserve estimates for prior policy years. The increase in loss reserve estimates for prior policy years was primarily attributable to a change in methodology used by the Company’s internal actuary to estimate total ultimate losses. Previously, the internal actuary’s model did not separate claims experience for large title claims from normal title claims activity. With this change in methodology, the model began to separate claims experience for large title claims from normal title claims activity when developing reserve estimates. As a result, loss reserve estimates for prior policy years increased, primarily for policy years 2004 through 2007. The change in methodology was implemented due to the increased frequency of large title claims experienced over the prior several years and the volatility associated with the timing and severity of large title claims. The Company accounted for this change in methodology as a change in accounting estimate.

The 2014 rate of 7.1% reflected an ultimate loss rate of 5.3% for policy year 2014 and a net increase in loss reserve estimates for prior policy years of $64.1 million. The increase in loss reserve estimates for prior policy years reflected claims development above expected levels during 2014, primarily from domestic commercial policies. The reserve strengthening associated with domestic commercial policies was $41.4 million and was primarily attributable to several large commercial claims, net of anticipated recoveries, mainly from mechanics liens, and primarily related to policy years 2003, 2005 and 2007. Other factors, including a large international commercial claim from policy year 2004, also contributed to the net increase in loss reserve estimates for prior policy years.

As of December 31, 2016, the projected ultimate loss ratios for policy years 2016, 2015 and 2014 were 4.5%, 4.1% and 4.8%, respectively.

A summary of the Company’s loss reserves is as follows:

(in thousands, except percentages)	December 31, 2016				December 31, 2015
Known title claims	$	83,805	8.1	%	$	87,543	8.9	%
Incurred but not reported claims		888,126	86.6	%		844,364	85.8	%
Total title claims		971,931	94.7	%		931,907	94.7	%
Non-title claims		53,932	5.3	%		51,973	5.3	%
Total loss reserves	$	1,025,863	100.0	%	$	983,880	100.0	%

Specialty Insurance Segment

The following is information about incurred and paid claims development for the Company’s specialty insurance segment as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency, by claim event, and the total of incurred but not reported claims plus expected development on reported claims included with the net incurred claims amounts.

The information about incurred and paid claims development for the years ended December 31, 2007 to 2015, is presented as supplementary information.



	Incurred claims and allocated claims adjustment expenses, net of reinsurance																					December 31, 2016
Accident	Years ended December 31,																					Total of IBNR liabilities plus expected development on reported	Cumulative number of reported
Year		2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016		claims	claims
	(in thousands)
2007	$	162,972	$	163,649	$	164,025	$	163,099	$	162,563	$	162,380	$	162,324	$	162,214	$	162,223	$	162,217	$	—	642
2008				163,829		161,035		160,868		161,322		160,803		160,605		160,455		160,423		160,421		—	605
2009						141,154		139,580		139,663		139,266		138,936		139,090		139,191		139,216		—	605
2010								140,621		139,966		139,991		139,639		140,128		140,641		140,353		1	606
2011										148,395		149,076		149,768		149,486		149,763		149,552		10	641
2012												157,287		158,981		159,918		160,579		160,517		54	692
2013														182,858		184,419		185,244		184,826		217	762
2014																190,985		190,738		191,120		764	789
2015																		221,617		225,754		2,027	867
2016																				245,859		8,371	971
																		Total	$	1,759,835

*Amounts unaudited.


		Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance

Accident		Years ended December 31,
Year		2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016
	(in thousands)
2007	$	132,426	$	158,669	$	161,458	$	161,970	$	162,235	$	162,307	$	162,323	$	162,214	$	162,223	$	162,217
2008				131,251		155,585		158,695		160,074		160,436		160,398		160,427		160,421		160,421
2009						113,550		134,606		137,689		138,293		138,710		138,963		139,181		139,186
2010								113,513		136,770		138,978		139,486		140,136		140,886		140,302
2011										123,116		144,367		146,952		148,984		149,358		149,495
2012												130,623		153,753		157,364		159,181		159,740
2013														151,377		180,277		182,565		183,957
2014																156,536		185,686		188,117
2015																		181,445		217,618
2016																				205,857
																		Total	$	1,706,910
						All outstanding liabilities before 2007, net of reinsurance														53
						Liabilities for claims and claims adjustment expenses, net of reinsurance													$	52,978

*Amounts unaudited.

A reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expense at December 31, 2016, is as follows:

		December 31, 2016
	(in thousands)
Liability for unpaid claims and claim adjustment expenses, net of reinsurance:
Specialty insurance	$	52,978

Insurance lines other than short-duration:
Title insurance		971,931
Unallocated claims adjustment expenses		954
		972,885

Liability for unpaid claims and claims adjustment expenses	$	1,025,863

The following is supplementary information about average historical claims duration for the Company’s specialty insurance segment as of December 31, 2016:


Average annual percentage payout of incurred claims by age, net of reinsurance (unaudited)

Years	1		2		3		4		5		6		7		8		9		10

Annual
payout	81.9	%	15.3	%	1.5	%	0.9	%	0.3	%	0.1	%	0.0	%	0.0	%	0.0	%	0.0	%