9. Unpaid Losses and Loss Expenses and Policy Benefits for Life and Annuity Contracts

Unpaid losses and loss expenses are categorized into three types of reserves: reported outstanding loss reserves (case reserves), additional case reserves (ACRs) and incurred but not reported (IBNR) reserves. Case reserves represent unpaid losses reported by the Company's cedants and recorded by the Company. ACRs are established for particular circumstances where, on the basis of individual loss reports, the Company estimates that the particular loss or collection of losses covered by a treaty may be greater than those advised by the cedant. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves and ACRs. The following table shows the Company's gross liability for unpaid losses and loss expenses reported by cedants (case reserves) and those estimated by the Company (ACRs and IBNR reserves) at December 31, 2011 and 2010 (in thousands of U.S. dollars):

The table below is a reconciliation of the beginning and ending gross and net liability for unpaid losses and loss expenses, excluding policy benefits for life and annuity contracts, for the years ended December 31, 2011, 2010 and 2009 (in thousands of U.S. dollars):

		2011		2010		2009

Gross liability at beginning of year	$	10,666,604	$	10,811,483	$	7,510,666
Reinsurance recoverable at beginning of year		348,747		336,352		125,215

Net liability at beginning of year		10,317,857		10,475,131		7,385,451

Net liability acquired related to Paris Re		—		—		3,176,255

Net incurred losses related to:
Current year		4,252,766		3,137,874		2,340,768
Prior years		(530,457)		(477,883)		(485,809)

		3,722,309		2,659,991		1,854,959

Change in Paris Re Reserve Agreement		(61,383)		(66,783)		(32,027)

Net paid losses related to:
Current year		930,407		311,253		327,080
Prior years		2,060,152		2,267,765		1,716,798

		2,990,559		2,579,018		2,043,878
Effects of foreign exchange rate changes		(68,238)		(171,464)		134,371

Net liability at end of year		10,919,986		10,317,857		10,475,131
Reinsurance recoverable at end of year		353,105		348,747		336,352

Gross liability at end of year	$	11,273,091	$	10,666,604	$	10,811,483

The table below is a reconciliation of losses and loss expenses including life policy benefits for the years ended December 31, 2011, 2010 and 2009 (in thousands of U.S. dollars):

		2011		2010		2009

Net incurred losses related to:
Non-life	$	3,722,309	$	2,659,991	$	1,854,959
Life		650,261		623,627		440,337

Losses and loss expenses and life policy benefits	$	4,372,570	$	3,283,618	$	2,295,296

The following table summarizes the prior year net favorable development of loss reserves for each of the Company's Non-life sub-segments for the years ended December 31, 2011, 2010 and 2009 (in thousands of U.S. dollars):

			2011		2010		2009

Prior year net favorable loss development:
Non-life sub-segment
	North America	$	189,180	$	165,780	$	177,571
	Global (Non-U.S.) P&C		115,995		97,539		151,456
	Global (Non-U.S.) Specialty		128,975		170,931		107,632
	Catastrophe		96,307		43,633		49,150

Total net Non-life prior year loss development		$	530,457	$	477,883	$	485,809

Within the Company's North America sub-segment, the Company reported net favorable loss development for prior accident years in 2011, 2010 and 2009. The net favorable loss development in 2011 included net favorable development for prior accident years in most lines of business, predominantly in the casualty line, while the credit/surety and motor lines experienced combined adverse loss development for prior accident years of $11 million. The net favorable loss development in 2010 included net favorable development for prior accident years in most lines of business, predominantly in the casualty and agriculture lines, while the motor line of business experienced adverse loss development for prior accident years of $8 million. The net favorable loss development in 2009 included net favorable development for prior accident years in most lines of business, predominantly in the casualty line, while the multiline line experienced adverse loss development for prior accident years of $8 million. The net favorable loss development in each year was primarily due to favorable loss emergence. Loss information provided by cedants during each of these years for prior accident years was lower than the Company expected and included no individually material losses or reductions but a series of attritional losses or reductions. Attritional losses are losses that may not be significant on an individual basis, but are monitored on an aggregated basis by the Company to identify trends that may be meaningful from a reserving standpoint.

For the Global (Non-U.S.) P&C sub-segment, the Company reported net favorable loss development for prior accident years in 2011, 2010 and 2009. The net favorable loss development in 2011 included net favorable development for prior accident years in all lines of business and was most pronounced in the motor line. The net favorable loss development in 2010 included net favorable development for prior accident years in all lines of business, but was most pronounced in the property line. The net favorable loss development in 2009 included net favorable development for prior accident years in all lines of business, but was most pronounced in the motor and casualty lines. The net favorable loss development in each year was primarily due to favorable loss emergence. Loss information provided by cedants during each of these years for prior accident years was lower than the Company expected and included no individually significant losses or reductions but a series of attritional losses or reductions.

For the Global (Non-U.S.) Specialty sub-segment, the Company reported net favorable loss development for prior accident years in 2011, 2010 and 2009. The net favorable loss development in 2011 included net favorable development for prior accident years in most lines of business, except for the energy and engineering lines, which experienced combined adverse loss development for prior accident years of $13 million. The adverse loss development for prior accident years in the energy and engineering lines was driven by the increases in upward premium adjustments reported by cedants in 2011. The net favorable loss development in 2010 included net favorable development for prior accident years in all lines of business, except for the specialty casualty line, which experienced adverse loss development for prior accident years of $37 million. The net favorable loss development in 2009 included net favorable development for prior accident years in most lines of business, predominantly in the aviation and engineering lines, while the agriculture and credit/surety lines experienced combined adverse loss development for prior accident years. The net favorable loss development in each year was primarily due to favorable loss emergence. Loss information provided by cedants during each of these years for prior accident years was lower than the Company expected and included no individually significant losses or reductions but a series of attritional losses or reductions.

For the Catastrophe sub-segment, the Company reported net favorable loss development for prior accident years in 2011, 2010 and 2009. The net favorable loss development in each year was primarily due to favorable loss emergence, as losses reported by cedants for prior accident years were lower than the Company expected.

Following Paris Re's acquisition of substantially all of the reinsurance operations of Colisée Re in 2006, Paris Re's French operating subsidiary (Paris Re France) entered into a reserve agreement (Reserve Agreement), which provides that AXA and Colisée Re shall guarantee reserves in respect of Paris Re France and subsidiaries acquired in the acquisition. The Reserve Agreement relates to losses incurred prior to December 31, 2005. Accordingly, the Company's Consolidated Statements of Operations do not include any favorable or adverse development related to these guaranteed reserves. The reserve guarantee provided by AXA and Colisée Re is conditioned upon, among other things, the guaranteed business, including all related ceded reinsurance, being managed by AXA Liabilities Managers, an affiliate of Colisée Re.

Favorable or adverse development related to the guaranteed reserves is recorded as a change in unpaid losses and loss expenses in the Consolidated Balance Sheets and as a change in the Reserve Agreement payable or receivable balance to/from Colisée Re, which is included within Other reinsurance balances payable in the Consolidated Balance Sheets. Accordingly, the reconciliation of the beginning and ending gross and net liability for unpaid losses and loss expenses for the years ended December 31, 2011, 2010 and 2009 includes the change in the Reserve Agreement. At December 31, 2011 and 2010, the Company's net liability for unpaid losses and loss expenses includes $1,012 million and $1,239 million, respectively, of guaranteed reserves and Other reinsurance balances payable includes $183 million and $128 million, respectively, payable to Colisée Re related to the Reserve Agreement.

Loss estimates arising from earthquakes are inherently more uncertain than those from other catastrophic events. The Company's actual losses from the earthquakes that occurred in New Zealand in September 2010 (2010 New Zealand Earthquake) and in February and June 2011 (February and June 2011 New Zealand Earthquakes) may materially exceed the estimated losses as a result of, among other things, an increase in industry insured loss estimates, the expected lengthy claims development period, in particular for earthquake related losses, and the receipt of additional information from cedants, brokers and loss adjusters. In addition, the Company's loss estimate related to the Japan Earthquake is inherently more uncertain than those from other catastrophic events given the characteristics of the Company's reinsurance portfolio in the region. Further, changes in loss assumptions for specific cedants may have a material impact on the Company's loss estimate related to this event given a significant portion of the losses are concentrated with a few large cedants. The Company believes there remains a high degree of uncertainty regarding its loss estimates related to the 2010 and the February and June 2011 New Zealand Earthquakes and the Japan Earthquake, and the ultimate losses arising from these events may be materially in excess of, or less than, the amounts provided for in the Consolidated Balance Sheet at December 31, 2011. Any adjustments to the Company's preliminary estimate of its ultimate losses related to these events will be reflected in the periods in which they are determined, which may affect the Company's operating results in future periods.

The Company's net reserves for unpaid losses and loss expenses at December 31, 2011 and 2010 included $195 million and $214 million, respectively, that represent estimates of its net ultimate liability for asbestos and environmental claims. The gross liability for such claims at December 31, 2011 and 2010 was $203 million and $222 million, respectively, which primarily relate to Paris Re's gross liability for asbestos and environmental claims for accident years 2005 and prior of $127 million and $144 million, respectively, with any favorable or adverse development being subject to the Reserve Agreement. Of the remaining $76 million and $78 million, respectively, in gross reserves, the majority relates to casualty exposures in the United States arising from business written by PartnerRe SA and PartnerRe U.S.

Ultimate loss estimates for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the amount of the Company's potential losses for these claims. In view of the legal and tort environment that affect the development of such claims, the uncertainties inherent in estimating asbestos and environmental claims are not likely to be resolved in the near future. There can be no assurance that the reserves established by the Company will not be adversely affected by development of other latent exposures, and further, there can be no assurance that the reserves established by the Company will be adequate. The Company does, however, actively evaluate potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific issues that would materially affect its unpaid losses and loss expense reserves related to this exposure.

The Life segment reported net favorable loss development for prior accident years of $1 million and $15 million for the years ended December 31, 2011 and 2009, respectively, and net adverse loss development for prior accident years of $12 million for the year ended December 31, 2010.

The modest net favorable prior year loss development of $1 million in 2011 was the net result of favorable prior year loss development of $6 million on certain mortality treaties and $5 million related to the guaranteed minimum death benefit (GMDB) business, which were almost entirely offset by adverse prior year loss development related to disability riders on certain short-term non-proportional treaties in the mortality line following the receipt of updated information from cedants.

The net adverse prior year loss development of $12 million in 2010 was primarily driven by adverse development of $23 million due to an improvement in the mortality trend related to an impaired life annuity treaty in the longevity line and adverse development on certain mortality treaties. This adverse development was partially offset by favorable prior year loss development of $17 million resulting from the GMDB business, where the payout is linked to the performance of underlying capital market assets, driven by new cedant information and updated assumptions.

The net favorable prior year loss development of $15 million in 2009 was mainly driven by the GMDB business.

The Company used interest rate assumptions to estimate its liabilities for policy benefits for life and annuity contracts which ranged from 1.0% to 7.0% and 1.0% to 6.0% at December 31, 2011 and 2010, respectively.