Liability for Unpaid Loss and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2012

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:

	Years Ended December 31,
	2012		2011		2010
	(dollars in thousands)
Unpaid loss and loss adjustment expenses, January 1	$	680,201	$	649,641	$	616,444
Reinsurance recoverable on unpaid losses and loss adjustment expenses January 1		173,267		196,590		196,080
Net unpaid loss and loss adjustment expenses, January 1		506,934		453,051		420,364
Incurred related to:
Current year		162,660		155,998		119,939
Prior years		9,038		13,369		356
Total incurred		171,698		169,367		120,295
Paid related to:
Current year		26,822		22,454		13,302
Prior years		112,214		93,030		74,306
Total paid		139,036		115,484		87,608
Net unpaid loss and loss adjustment expenses, December 31		539,596		506,934		453,051
Reinsurance recoverable on unpaid loss and loss adjustment expenses, December 31		185,648		173,267		196,590
Unpaid loss and loss adjustment expenses, December 31	$	725,244	$	680,201	$	649,641

The net prior year reserve development for 2012, 2011 and 2010, occurred in the following business lines:

	Year Ended December 31,
	2012			2011			2010
	(dollars in thousands)
(Favorable) Unfavorable
E & S Lines	$	(1,780	)	$	(10,209	)	$	(2,397	)
Alternative Risk Transfer		2,946			12,120			2,666
Assumed Re		8,096			9,437			1,448
Runoff		(224	)		2,021			(1,361	)
Total	$	9,038		$	13,369		$	356

The $9.0 million adjustment to loss reserves was comprised of: (1) E&S favorable development of $1.8 million within the construction general liability lines; (2) $8.1 million dollars of unfavorable development within the Reinsurance segment primarily in professional liability; (3) $2.9 million of adverse development in the ART division, and $0.2 million favorable development in run-off.

Management continually attempts to refine 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.