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.

	Three Months Ended
	March 31,
(in millions)	2018			2017
Gross loss and LAE reserves, beginning of period	$	7,745.0		$	6,949.4
Reinsurance recoverable on unpaid losses		2,608.4			2,274.8
Net loss and LAE reserves, beginning of period		5,136.6			4,674.6
Net incurred losses and LAE in respect of losses occurring in:
Current year		803.7			773.9
Prior years		(17.9	)		(7.4	)
Total incurred losses and LAE		785.8			766.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		187.2			167.1
Prior years		537.4			452.3
Total payments		724.6			619.4
Effect of foreign exchange rate changes		13.2			7.4
Net reserve for losses and LAE, end of period		5,211.0			4,829.1
Reinsurance recoverable on unpaid losses		2,308.2			2,273.9
Gross reserve for losses and LAE, end of period	$	7,519.2		$	7,103.0

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 $17.9 million in 2018 in comparison to $7.4 million in 2017.

2018

For the three months ended March 31, 2018, net favorable loss and LAE development was $17.9 million, primarily as a result of favorable development of $11.4 million for Chaucer and $8.2 million for Commercial Lines.

Chaucer’s favorable development during the three months ended March 31, 2018 was primarily the result of lower loss estimates in the specialty treaty, political, and energy lines, partially offset by higher than expected losses in the U.S. casualty treaty line. Also contributing to Chaucer’s favorable development was the favorable impact of foreign exchange rate movements on prior years’ loss reserves.

The favorable Commercial Lines development resulted from lower than expected losses primarily in the commercial multiple peril line.

2017

For the three months ended March 31, 2017, net favorable loss and LAE development was $7.4 million, primarily as a result of net favorable development of $7.7 million for Chaucer.

Chaucer’s favorable development during the three months ended March 31, 2017 was primarily the result of lower loss estimates in the energy line. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.