11. Liabilities for Outstanding Claims, Losses and Loss Adjustment Expenses

Reserve Rollforward and Prior Year Development

The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in results of operations as adjustments to losses and LAE. Often these adjustments are recognized in periods subsequent to the period in which the underlying policy was written and loss event occurred. These types of subsequent adjustments are described as “prior years’ loss reserves”. Such development can be either favorable or unfavorable to the Company’s financial results and may vary by line of business. In this section, all amounts presented include catastrophe losses and LAE, unless otherwise indicated.

The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.

	Nine Months Ended
	September 30,
(in millions)	2017			2016
Gross loss and LAE reserves, beginning of period	$	6,949.4		$	6,574.4
Reinsurance recoverable on unpaid losses		2,274.8			2,280.8
Net loss and LAE reserves, beginning of period		4,674.6			4,293.6
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,414.1			2,145.1
Prior years		(44.6	)		(23.8	)
Total incurred losses and LAE		2,369.5			2,121.3
Net payments of losses and LAE in respect of losses occurring in:
Current year		851.2			775.1
Prior years		1,131.5			1,088.3
Total payments		1,982.7			1,863.4
Effect of foreign exchange rate changes		40.3			(52.6	)
Net reserve for losses and LAE, end of period		5,101.7			4,498.9
Reinsurance recoverable on unpaid losses		2,533.7			2,303.4
Gross reserve for losses and LAE, end of period	$	7,635.4		$	6,802.3

As a result of continuing trends in the Company’s business, reserves including catastrophes have been re-estimated for all prior accident years and were decreased by $44.6 million in 2017 in comparison to $23.8 million in 2016.

2017

For the nine months ended September 30, 2017, net favorable loss and LAE development was $44.6 million, primarily as a result of net favorable development of $44.3 million for Chaucer.

Chaucer’s favorable development during the nine months ended September 30, 2017 was primarily the result of lower loss estimates in the energy line of $23.0 million, primarily in the 2011 through 2016 accident years, in the political line of $10.8 million, primarily in the 2014 through 2016 accident years, and to a lesser extent in the treaty business.

2016

For the nine months ended September 30, 2016, net favorable loss and LAE development was $23.8 million, primarily as a result of net favorable development of $89.9 million for Chaucer, partially offset by unfavorable development of $61.8 million for Commercial Lines.

Chaucer’s favorable development during the nine months ended September 30, 2016 was primarily the result of lower than expected losses in the treaty business of $28.4 million, primarily in the 2014 through 2015 accident years, in the casualty line of $17.6 million, primarily in the 2014 and prior accident years, in the energy line of $16.8 million, primarily in the 2014 through 2015 accident years, in the political line of $15.8 million, primarily in the 2014 through 2015 accident years, and in the property line of $10.1 million, primarily in the 2013 through 2015 accident years. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.

The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $37.3 million, which includes the AIX program business. This was primarily driven by AIX programs and business classes which have since been terminated or substantially revised in the 2013 and prior accident years and by general liability coverages in the 2013 through 2014 accident years. The Company also experienced higher than expected losses within the commercial multiple peril line of $30.1 million in the 2012 through 2014 accident years. Partially offsetting the unfavorable development was lower than expected losses within the workers’ compensation line of $14.7 million, primarily related to the 2013 through 2015 accident years.