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.

	Six Months Ended
	June 30,
(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		1,603.5			1,516.0
Prior years		(34.1	)		(24.5	)
Total incurred losses and LAE		1,569.4			1,491.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		504.9			491.2
Prior years		944.1			799.7
Total payments		1,449.0			1,290.9
Effect of foreign exchange rate changes		(14.1	)		25.8
Net reserve for losses and LAE, end of period		5,242.9			4,901.0
Reinsurance recoverable on unpaid losses		2,263.5			2,261.4
Gross reserve for losses and LAE, end of period	$	7,506.4		$	7,162.4

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 $34.1 million in 2018 in comparison to a decrease of $24.5 million in 2017.

2018

For the six months ended June 30, 2018, net favorable loss and LAE development was $34.1 million, primarily as a result of net favorable development of $27.4 million for Chaucer.

Chaucer’s favorable development during the six months ended June 30, 2018 was primarily the result of lower loss estimates in the political, marine and aviation lines of $27.2 million and in the energy line, partially offset by higher than expected losses in the casualty line and the U.S. casualty business within the treaty line. Also partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.

Additionally, lower than expected losses in other commercial, commercial multiple peril and workers’ compensation lines was partially offset by higher than expected losses in our commercial and personal automobile lines. Within other commercial lines, lower than expected losses in our professional and management liability and monoline general liability lines was partially offset by higher than expected losses in AIX programs and business classes which have been terminated.

2017

For the six months ended June 30, 2017, net favorable loss and LAE development was $24.5 million, primarily as a result of net favorable development of $24.3 million for Chaucer.

Chaucer’s favorable development during the six months ended June 30, 2017 was primarily the result of lower loss estimates in the energy line of $15.5 million and in the treaty line. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.