3. RESERVES FOR LOSSES AND LAE

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)	2014			2013			2012
Gross reserves at January 1	$	7,653,229		$	8,143,055		$	8,290,619
Less reinsurance recoverables		(3,427,385	)		(3,444,970	)		(3,374,427	)
Net reserves at January 1		4,225,844			4,698,085			4,916,192

Incurred related to:
Current year		1,314,887			1,227,525			1,237,486
Prior years		39,206			44,631			12,258
Total incurred losses and LAE		1,354,093			1,272,156			1,249,744

Paid related to:
Current year		452,662			464,914			365,805
Prior years		926,819			1,209,941			1,097,353
Total paid losses and LAE		1,379,481			1,674,855			1,463,158

Foreign exchange/translation adjustment		(59,382	)		(69,542	)		(4,693	)

Net reserves at December 31		4,141,074			4,225,844			4,698,085
Plus reinsurance recoverables		3,702,782			3,427,385			3,444,970
Gross reserves at December 31	$	7,843,856		$	7,653,229		$	8,143,055

Prior years' reserves increased by $39,206 thousand, $44,631 thousand and $12,258 thousand for the years ended December 31, 2014, 2013 and 2012, respectively. The increase for 2014 was attributable to an increase of $87,362 thousand in A&E reserves along with unfavorable development of $11,352 thousand in the insurance segment, partially offset by $59,509 thousand of favorable development in the reinsurance segments related to treaty casualty, treaty property and catastrophe reserves.

The increase for 2013 was attributable to a $71,838 thousand increase in insurance business, primarily related to development on contractors liability, workers compensation, and umbrella reserves, partially offset by a $27,207 thousand decrease in reinsurance business, primarily related to favorable development on treaty property reserves.

The increase for 2012 was attributable to a $29,612 thousand increase in insurance business, primarily related to development on contractors liability and workers compensation reserves, partially offset by the $17,354 thousand decrease in reinsurance business, primarily related to favorable development on treaty casualty 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 Companys reserves include an estimate of the Companys ultimate liability for A&E claims.The Companys A&E liabilities emanate from Mt. McKinley, a direct subsidiary of the Company, direct insurance business and Everest Res 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 Companys 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)	2014			2013			2012
Gross basis:
Beginning of period reserves	$	402,461		$	442,821		$	499,911
Incurred losses		142,233			5,598			132
Paid losses		(68,490	)		(45,958	)		(57,222	)
End of period reserves	$	476,205		$	402,461		$	442,821

Net basis:
Beginning of period reserves	$	269,370		$	305,469		$	341,251
Incurred losses		87,362			3,965			17
Paid losses		(52,446	)		(40,064	)		(35,799	)
End of period reserves	$	304,286		$	269,370		$	305,469

Reinsurance Receivables. Reinsurance receivables for both paid and unpaid losses totaled $4,032,018 thousand and $3,593,042 thousand at December 31, 2014 and 2013, respectively. At December 31, 2014, $3,293,436 thousand, or 81.7%, was receivable from Everest Reinsurance (Bermuda), Ltd. ("Bermuda Re") and is fully collateralized by a trust agreement. No other retrocessionaire accounted for more than 5% of reinsurance receivables.