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)	2016			2015			2014
Gross reserves at January 1	$	7,940,720		$	7,843,856		$	7,653,229
Less reinsurance recoverables		(3,875,073	)		(3,702,782	)		(3,427,385	)
Net reserves at January 1		4,065,647			4,141,074			4,225,844

Incurred related to:
Current year		1,441,962			1,326,015			1,314,887
Prior years		(91,682	)		(6,454	)		39,206
Total incurred losses and LAE		1,350,280			1,319,561			1,354,093

Paid related to:
Current year		400,489			357,819			452,662
Prior years		892,207			946,337			926,819
Total paid losses and LAE		1,292,696			1,304,156			1,379,481

Foreign exchange/translation adjustment		8,266			(90,832	)		(59,382	)

Net reserves at December 31		4,131,497			4,065,647			4,141,074
Plus reinsurance recoverables		4,199,791			3,875,073			3,702,782
Gross reserves at December 31	$	8,331,288		$	7,940,720		$	7,843,856

Incurred prior years' reserves decreased by $91,682 thousand and $6,454 thousand for the years ended December 31, 2016 and 2015, respectively, and increased by $39,206 thousand for the year ended December 31, 2014. The decrease for 2016 was attributable to favorable development in the reinsurance segments of $187,909 thousand related primarily to property and short-tail business in the U.S., property business in Canada, Latin America, Middle East and Africa, as well as favorable development on prior year catastrophe losses, partially offset by $45,668 thousand of adverse development on A&E reserves. Part of the favorable development in the reinsurance segment related to the 2015 loss from the explosion at the Chinese port of Tianjin. In 2015, this loss was originally estimated to be $21,566 thousands. At December 31, 2016, this loss was projected to be $6,261 thousands resulting in $15,305 thousands of favorable development in 2016. The net favorable development in the reinsurance segments was partially offset by $96,227 thousand of unfavorable development in the insurance segment primarily related to run-off construction liability and umbrella program business.

The decrease for 2015 was attributable to $86,540 thousand of favorable development in the reinsurance segments related to treaty casualty, treaty property and catastrophe reserves, partially offset by unfavorable development of $80,086 thousand in the insurance segment primarily related to construction liability and umbrella business.

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 following is information about incurred and paid claims development as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities (IBNR) plus expected development on reported claims included within the net incurred claims amounts. Each of the Company's financial reporting segments has been disaggregated into casualty and property business. The casualty and property segregation results in groups that have homogeneous loss development characteristics and are large enough to represent credible trends. Generally, casualty claims take longer to be reported and settled, resulting in longer payout patterns and increased volatility. Property claims on the other hand, tend to be reported and settled quicker and therefore tend to exhibit less volatility.

The property business is more exposed to catastrophe losses, which can result in year over year fluctuations in incurred claims depending on the frequency and severity of catastrophes claims in any one accident year.

The information about incurred and paid claims development for the years ended December 31, 2012 to December 31, 2015 is presented as supplementary information.

These tables present five years of incurred and paid claims development as it is impracticable to retrospectively create the tables for ten years. For the reinsurance groups, for the years prior to 2012, the total of IBNR plus expected development on reported claims was not prepared on an accident year basis. The Company calculated these IBNR amounts in the aggregate for each business unit in total as of prior year end points in time. While business written in the United States would have been allocated to accident year for regulatory reporting purposes, business written outside of the United States would not have been similarly allocated. Attempting to allocate the non-U.S. business IBNR reserves to accident year currently for older year end valuations would require making assumptions and estimates which may not be in line with assumptions that would have been made at the time. A similar situation applies to insurance where the accumulation of the business lines reported in the regulatory filings are not consistent with the breakout of the tables presented below. As a result of not being able to present the information prior to 2012, prospectively an additional year will be added to the tables each reporting year until a ten year table is presented.

The Cumulative Number of Reported Claims is shown only for Insurance Casualty as it is impracticable to provide the information for the remaining groups. The reinsurance groups each include pro rata contracts for which ceding companies provide only summary information via a bordereau. This summary information does not include the number of reported claims underlying the paid and reported losses. Therefore, it is not possible to provide this information. The Insurance Property group includes Accident & Health insurance business. This business is written via a master contract and individual claim counts are not provided. This business represents a significant enough portion of the business in the Insurance Property group so that including the number of reported claims for the remaining business would distort any analytics performed on the group.

The Cumulative Number of Reported Claims shown for the Insurance Casualty is determined by claim and line of business. For example, a claim event with three claimants in the same line of business is a single claim. However, a claim event with a single claimant that spans two lines of business contributes two claims. Cessions under affiliated quota share agreements reduce net losses but do not impact claim counts.

The following tables present the incurred loss and ALAE and the paid loss and ALAE, net of reinsurance for casualty and property, as well as the average annual percentage payout of incurred claims by age, net of reinsurance for each of our disclosed lines of business.

U.S. Reinsurance – Casualty Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	249,427	$	211,113	$	139,581	$	139,137	$	145,577		37,168		N/A
2013				117,039		183,581		181,005		186,086		77,332		N/A
2014						197,453		189,580		193,693		112,260		N/A
2015								155,854		178,324		132,688		N/A
2016										171,551		150,094		N/A
									$	875,232

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	2,371	$	11,455	$	24,593	$	54,376	$	76,026
2013				4,645		15,589		43,205		73,793
2014						7,102		21,782		47,847
2015								7,881		21,851
2016										7,433
									$	226,950
All outstanding liabilities prior to 2012, net of reinsurance										869,493
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	1,517,775

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Casualty	3.4%	6.9%	12.7%	18.2%	14.9%

U.S. Reinsurance – Property Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	581,047	$	468,914	$	374,436	$	371,698	$	362,664		1,782		N/A
2013				281,153		303,058		278,774		247,991		5,341		N/A
2014						327,032		297,400		238,264		18,179		N/A
2015								324,705		259,346		41,130		N/A
2016										423,729		188,254		N/A
									$	1,531,994

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	129,689	$	228,584	$	285,761	$	310,382	$	322,765
2013				119,578		165,294		199,072		213,544
2014						110,081		163,982		189,854
2015								113,186		166,844
2016										156,865
									$	1,049,872
All outstanding liabilities prior to 2012, net of reinsurance										54,326
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	536,448

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Property	41.1%	22.8%	13.8%	6.4%	3.4%

International – Casualty Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	118,149	$	53,561	$	32,933	$	41,248	$	43,426		6,971		N/A
2013				56,371		38,279		40,297		52,698		17,310		N/A
2014						55,684		46,674		66,391		32,996		N/A
2015								53,475		72,931		48,397		N/A
2016										72,155		57,621		N/A
									$	307,600

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	7,036	$	10,522	$	16,375	$	19,764	$	22,979
2013				5,805		13,659		17,675		21,404
2014						8,149		14,701		20,853
2015								8,322		17,994
2016										10,513
									$	93,742
All outstanding liabilities prior to 2012, net of reinsurance										69,124
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	282,982

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Casualty	12.9%	11.7%	9.9%	7.4%	7.4%

International – Property Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	270,799	$	253,946	$	206,031	$	209,972	$	204,343		30		N/A
2013				180,751		178,018		170,909		158,426		1,483		N/A
2014						319,985		262,394		203,087		31,751		N/A
2015								261,465		173,501		16,201		N/A
2016										179,737		54,787		N/A
									$	919,094

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	82,008	$	140,733	$	173,327	$	183,819	$	188,178
2013				47,180		99,809		120,790		135,518
2014						58,722		107,116		137,474
2015								56,211		109,416
2016										52,857
									$	623,444
All outstanding liabilities prior to 2012, net of reinsurance										100,482
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	396,133

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Property	32.3%	28.8%	14.8%	7.0%	2.1%

Insurance – Casualty Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	211,633	$	174,642	$	185,025	$	184,456	$	188,066		22,750		15,638
2013				255,726		227,745		230,312		224,374		57,553		21,168
2014						237,459		238,424		240,318		69,505		24,829
2015								258,299		258,331		137,267		25,939
2016										353,447		269,444		23,463
									$	1,264,535

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	15,671	$	55,184	$	84,322	$	116,511	$	133,140
2013				17,106		68,516		101,543		129,619
2014						20,357		71,833		114,055
2015								19,916		67,846
2016										24,681
									$	469,341
All outstanding liabilities prior to 2012, net of reinsurance										373,822
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	1,169,016

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Casualty	7.7%	20.9%	16.0%	14.6%	8.8%

Insurance – Property Business


											At December 31, 2016
											Total of
											IBNR Liabilites
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance										Plus Expected
	Years Ended December 31,										Development		Cumulative
	2012		2013		2014		2015		2016		on Reported		Number of
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)				Claims		Reported Claims
(Dollars in thousands)
2012	$	58,245	$	46,862	$	43,478	$	44,807	$	44,235		23		N/A
2013				63,807		56,751		51,988		52,696		1		N/A
2014						67,972		69,718		67,314		477		N/A
2015								80,203		75,707		1,950		N/A
2016										150,924		46,592		N/A
									$	390,876

(Some amounts may not reconcile due to rounding.)


	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	Years Ended December 31,
	2012		2013		2014		2015		2016
Accident Year	(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Dollars in thousands)
2012	$	26,853	$	44,352	$	42,807	$	44,459	$	44,169
2013				35,162		54,060		52,417		52,680
2014						40,218		66,316		66,476
2015								45,264		70,156
2016										71,647
									$	305,129
All outstanding liabilities prior to 2012, net of reinsurance										146
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	85,893

(Some amounts may not reconcile due to rounding.)


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
Years	1	2	3	4	5
Property	56.1%	36.4%	-1.8%	2.0%	-0.7%

Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.


	December 31, 2016
(Dollars in thousands)
Net outstanding liabilities
U.S. Reinsurance Casualty	$	1,517,775
U.S. Reinsurance Property		536,448
International Casualty		282,982
International Property		396,133
Insurance Casualty		1,169,016
Insurance Property		85,893
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance		3,988,248

Reinsurance recoverable on unpaid claims
U.S. Reinsurance Casualty		958,001
U.S. Reinsurance Property		731,331
International Casualty		456,106
International Property		567,074
Insurance Casualty		1,398,275
Insurance Property		89,005
Total reinsurance recoverable on unpaid claims		4,199,791

Insurance lines other than short-duration		-
Unallocated claims adjustment expenses		110,022
Other		33,227
		143,249

Total gross liability for unpaid claims and claim adjustment expense	$	8,331,288

(Some amounts may not reconcile due to rounding.)

Reserving Methodology

The Company maintains reserves equal to our estimated ultimate liability for losses and loss adjustment expense (LAE) for reported and unreported claims for our insurance and reinsurance businesses. Because reserves are based on estimates of ultimate losses and LAE by underwriting or accident year, the Company uses a variety of statistical and actuarial techniques to monitor reserve adequacy over time, evaluate new information as it becomes known, and adjust reserves whenever an adjustment appears warranted. The Company considers many factors when setting reserves including: (1) exposure base and projected ultimate premium; (2) expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (3) actuarial methodologies which analyze loss reporting and payment experience, reports from ceding companies and historical trends, such as reserving patterns, loss payments, and product mix; (4) current legal interpretations of coverage and liability; and (5) economic conditions. Insurance and reinsurance loss and LAE reserves represent the Company's best estimate of its ultimate liability. Actual loss and LAE ultimately paid may deviate, perhaps substantially, from such reserves. Net income (gain or loss) will be impacted in a period in which the change in estimated ultimate loss and LAE is recorded.

The detailed data required to evaluate ultimate losses for the Company's insurance business is accumulated from its underwriting and claim systems. Reserving for reinsurance requires evaluation of loss information received from ceding companies. Ceding companies report losses in many forms depending on the type of contract and the agreed or contractual reporting requirements. Generally, pro rata contracts require the submission of a monthly/quarterly account, which includes premium and loss activity for the period with corresponding reserves as established by the ceding company. This information is recorded into the Company's records. For certain pro rata contracts, the Company may require a detailed loss report for claims that exceed a certain dollar threshold or relate to a particular type of loss. Excess of loss and facultative contracts generally require individual loss reporting with precautionary notices provided when a loss reaches a significant percentage of the attachment point of the contract or when certain causes of loss or types of injury occur. Experienced claims staff handles individual loss reports and supporting claim information. Based on evaluation of a claim, the Company may establish additional case reserves in addition to the case reserves reported by the ceding company. To ensure ceding companies are submitting required and accurate data, Everest's Underwriting, Claim, Reinsurance Accounting, and Internal Audit Departments perform various reviews of ceding companies, particularly larger ceding companies, including on-site audits.

The Company segments both reinsurance and insurance reserves into exposure groupings for actuarial analysis. The Company assigns business to exposure groupings so that the underlying exposures have reasonably homogeneous loss development characteristics and are large enough to facilitate credible estimation of ultimate losses. The Company periodically reviews its exposure groupings and may change groupings over time as business changes. The Company currently uses approximately 150 exposure groupings to develop reserve estimates. One of the key selection characteristics for the exposure groupings is the historical duration of the claims settlement process. Business in which claims are reported and settled relatively quickly are commonly referred to as short tail lines, principally property lines. On the other hand, casualty claims tend to take longer to be reported and settled and casualty lines are generally referred to as long tail lines. Estimates of ultimate losses for shorter tail lines, with the exception of loss estimates for large catastrophic events, generally exhibit less volatility than those for the longer tail lines.

The Company uses a variety of actuarial methodologies, such as the expected loss ratio method, chain ladder methods, and Bornhuetter-Ferguson methods, supplemented by judgment where appropriate, to estimate ultimate loss and LAE for each exposure group.

Expected Loss Ratio Method: The expected loss ratio method uses earned premium times an expected loss ratio to calculate ultimate losses for a given underwriting or accident year. This method relies entirely on expectation to project ultimate losses with no consideration given to actual losses. As such, it may be appropriate for an immature underwriting or accident year where few, if any, losses have been reported or paid, but less appropriate for a more mature year.

Chain Ladder Method: Chain ladder methods use a standard loss development triangle to project ultimate losses. Age-to-age development factors are selected for each development period and combined to calculate age-to-ultimate development factors which are then applied to paid or reported losses to project ultimate losses. This method relies entirely on actual paid or reported losses to project ultimate losses. No other factors such as changes in pricing or other expectations are taken into account. It is most appropriate for groups with homogeneous, stable experience where past development patterns are expected to continue in the future. It is least appropriate for groups which have changed significantly over time or which are more volatile.

Bornhuetter-Ferguson Method: The Bornhuetter-Ferguson method is a combination of the expected loss ratio method and the chain ladder method. Ultimate losses are projected based partly on actual paid or reported losses and partly on expectation. Incurred but not reported (IBNR) reserves are calculated using earned premium, an a priori loss ratio, and selected age-to-age development factors and added to actual reported (paid) losses to determine ultimate losses. It is more responsive to actual reported or paid development than the expected loss ratio method but less responsive than the chain ladder method. The reliability of the method depends on the accuracy of the selected a priori loss ratio.

Although the Company uses similar actuarial methods for both short tail and long tail lines, the faster reporting of experience for the short tail lines allows the Company to have greater confidence in its estimates of ultimate losses for short tail lines at an earlier stage than for long tail lines. As a result, the Company utilizes, as well, exposure-based methods to estimate its ultimate losses for longer tail lines, especially for immature underwriting or accident years. For both short and long tail lines, the Company supplements these general approaches with analytically based judgments.

Key actuarial assumptions contain no explicit provisions for reserve uncertainty nor does the Company supplement the actuarially determined reserves for uncertainty.

Carried reserves at each reporting date are the Company's best estimate of ultimate unpaid losses and LAE at that date. The Company completes detailed reserve studies for each exposure group annually for both reinsurance and insurance operations. The completed annual reserve studies are "rolled-forward" for each accounting period until the subsequent reserve study is completed. Analyzing the roll-forward process involves comparing actual reported losses to expected losses based on the most recent reserve study. The Company analyzes significant variances between actual and expected losses and post adjustments to its reserves as warranted.

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 Company's reserves include an estimate of the Company's ultimate liability for A&E claims. The Company's A&E liabilities emanate from direct insurance business and Everest Re's 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 Company's 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)	2016			2015			2014
Gross basis:
Beginning of period reserves	$	433,117		$	476,205		$	402,461
Incurred losses		73,336			40,000			142,233
Paid losses		(65,342	)		(83,088	)		(68,490	)
End of period reserves	$	441,111		$	433,117		$	476,205

Net basis:
Beginning of period reserves	$	276,540		$	304,286		$	269,370
Incurred losses		45,668			30,879			87,362
Paid losses		(47,798	)		(58,625	)		(52,446	)
End of period reserves	$	274,409		$	276,540		$	304,286

(Some amounts may not reconcile due to rounding.)

On July 13, 2015, the Company closed its agreement to sell all of the outstanding shares of capital stock of Mt. McKinley, a Delaware domiciled insurance company and wholly-owned subsidiary of the Company to Clearwater Insurance Company, a Delaware domiciled insurance company. The purchase price of $20,156 thousand was based upon the statutory book value of Mt. McKinley as of the closing date. The Company recognized a pre-tax realized gain of $94,704 thousand on the sale of Mt. McKinley.

Reinsurance Receivables. Reinsurance receivables for both paid and unpaid losses totaled $4,573,787 thousand and $4,459,087 thousand at December 31, 2016 and 2015, respectively. At December 31, 2016, $3,651,720 thousand, or 79.8%, was receivable from Everest Reinsurance (Bermuda), Ltd. ("Bermuda Re"), an affiliated entity, and is fully collateralized by a trust agreement. No other retrocessionaire accounted for more than 5% of reinsurance receivables.