Liability for Unpaid Loss and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2011

Liability for Unpaid Loss and Loss Adjustment Expenses [Abstract]

Liability for Unpaid Loss and Loss Adjustment Expenses

(13) Liability for Unpaid Loss and Loss Adjustment Expenses

Activity in the liability for unpaid loss and loss adjustment expenses is summarized as follows:

		September 30,		September 30,		September 30,
	Years Ended December 31,
	2011		2010		2009
	(dollars in thousands)
Unpaid loss and loss adjustment expenses, January 1	$	649,641	$	616,444	$	586,647
Reinsurance recoverable on unpaid losses and loss adjustment expenses January 1		196,590		196,080		193,338
Net unpaid loss and loss adjustment expenses, January 1		453,051		420,364		393,309
Incurred related to:
Current year		155,998		119,939		102,163
Prior years		13,369		356		(4,517	)
Total incurred		169,367		120,295		97,646
Paid related to:
Current year		22,454		13,302		5,980
Prior years		93,030		74,306		64,611
Total paid		115,484		87,608		70,591
Net unpaid loss and loss adjustment expenses, December 31		506,934		453,051		420,364
Reinsurance recoverable on unpaid loss and loss adjustment expenses, December 31		173,267		196,590		196,080
Unpaid loss and loss adjustment expenses, December 31	$	680,201	$	649,641	$	616,444

The net prior year reserve development for 2011, 2010 and 2009, occurred in the following business lines:

		September 30,			September 30,			September 30,
	Year Ended December 31,
	2011			2010			2009
	(dollars in thousands)
(Favorable) Unfavorable
E & S Lines	$	(10,209	)	$	(2,397	)	$	(12,610	)
Alternative Risk Transfer		12,120			2,666			1,554
Assumed Re		9,437			1,448			5,679
Runoff		2,021			(1,361	)		860
Total	$	13,369		$	356		$	(4,517	)

The $13.4 million adjustment to loss reserves was comprised of: (1) E&S favorable development of $10.2 million within the construction general liability lines; (2) $12.2 million dollars of unfavorable development within the Assumed Reinsurance segment primarily in professional liability; (3) $9.4 million of adverse development in the ART division, and $2.0 million in runoff.

Management continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claims payments and other information, but many reasons remain for potential adverse development of estimated ultimate liabilities. For example, the uncertainties inherent in the loss estimation process have become increasingly subject to changes in legal trends. In recent years, this trend has expanded the liability of insureds, established new liabilities and reinterpreted contracts to provide unanticipated coverage long after the related policies were written. Such changes from past experience significantly affect the ability of insurers to estimate the liabilities for unpaid losses and related expenses.

Management recognizes the higher variability associated with certain exposures and books of business and considers this factor when establishing liabilities for losses. Management currently believes the Company’s gross and net liabilities are adequate.

The net liabilities for losses and loss adjustment expenses maintained by the Company’s insurance subsidiaries are equal under both statutory accounting practices and GAAP.