Reserve For Losses LAE And Future Policy Benefit Reserve | 3. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE 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) 2017 2016 2015 Gross reserves at January 1 $ 10,312,313 $ 9,951,798 $ 9,720,813 Less reinsurance recoverables (990,862 ) (881,503 ) (655,095 ) Net reserves at January 1 9,321,451 9,070,295 9,065,718 Incurred related to: Current year 4,815,967 3,434,964 3,129,744 Prior years (293,386 ) (295,335 ) (65,029 ) Total incurred losses and LAE 4,522,581 3,139,629 3,064,715 Paid related to: Current year 1,280,605 745,642 690,030 Prior years 2,062,634 2,042,972 2,180,076 Total paid losses and LAE 3,343,239 2,788,614 2,870,106 Foreign exchange/translation adjustment 170,879 (99,859 ) (190,032 ) Net reserves at December 31 10,671,672 9,321,451 9,070,295 Plus reinsurance recoverables 1,212,649 990,862 881,503 Gross reserves at December 31 $ 11,884,321 $ 10,312,313 $ 9,951,798 Current year incurred losses were $4,815,967 thousand at December 31, 2017 compared to $3,434,964 thousand at December 31, 2016. The increase in current year incurred losses was primarily due to $ 1,502,511 221,787 Incurred prior years' reserves decreased by $ 293,386 295,335 65,029 238,378 37,137 55,007 The decrease for 2016 was attributable to favorable development in the reinsurance segments of $ 468,749 53,909 60,000 16,720 43,280 173,414 The decrease for 2015 was attributable to favorable development in the reinsurance segments of $ 217,169 152,140 The following is information about incurred and paid claims development as of December 31, 2017, 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, 2016 is presented as supplementary information. These tables present six 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. The following tables present the ultimate 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, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 401,208 $ 396,348 $ 329,918 $ 326,226 $ 322,346 $ 322,565 46,925 N/A 2013 311,205 388,852 386,448 389,284 373,749 93,170 N/A 2014 367,685 384,036 392,897 376,147 135,094 N/A 2015 326,444 354,411 346,598 163,674 N/A 2016 330,385 345,872 221,582 N/A 2017 337,220 272,301 N/A $ 2,102,152 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 10,106 $ 38,799 $ 83,546 $ 144,228 $ 188,127 $ 219,687 2013 14,966 49,254 109,285 171,491 212,063 2014 18,903 54,460 110,545 164,958 2015 19,959 53,707 107,130 2016 18,941 58,329 2017 25,807 $ 787,973 All outstanding liabilities prior to 2012, net of reinsurance 945,365 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 2,259,543 (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 6 Casualty 5.2% 9.7% 15.1% 16.5% 12.1% 9.8% U.S. Reinsurance – Property Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 938,601 $ 725,098 $ 623,648 $ 610,631 $ 610,276 $ 606,657 16,054 N/A 2013 622,938 549,240 496,089 457,205 450,155 3,744 N/A 2014 641,956 551,402 474,834 439,279 10,087 N/A 2015 679,721 544,879 489,437 43,074 N/A 2016 966,781 792,187 109,698 N/A 2017 1,586,271 546,690 N/A $ 4,363,986 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 242,627 $ 403,010 $ 494,159 $ 530,630 $ 548,146 $ 565,001 2013 234,991 323,776 382,559 406,717 421,086 2014 218,933 322,307 370,796 396,820 2015 226,696 328,079 389,975 2016 286,444 552,545 2017 573,713 $ 2,899,139 All outstanding liabilities prior to 2012, net of reinsurance 60,784 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 1,525,631 (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 6 Property 40.4% 27.1% 13.1% 5.8% 3.0% 2.8% International – Casualty Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 227,948 $ 150,293 $ 139,412 $ 139,717 $ 122,272 $ 124,525 15,504 N/A 2013 188,025 172,834 170,467 150,865 148,265 28,514 N/A 2014 199,941 192,814 174,864 173,512 48,051 N/A 2015 197,518 183,842 179,038 65,441 N/A 2016 187,347 185,209 99,564 N/A 2017 194,925 143,028 N/A $ 1,005,474 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 19,429 $ 31,226 $ 47,743 $ 58,671 $ 68,806 $ 80,760 2013 18,472 42,905 57,067 70,853 79,808 2014 26,813 46,921 65,505 77,474 2015 25,231 50,706 72,943 2016 27,391 53,345 2017 27,791 $ 392,120 All outstanding liabilities prior to 2012, net of reinsurance 145,624 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 758,977 (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 6 Casualty 14.4% 13.3% 11.4% 8.2% 7.0% 9.6% International – Property Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 573,735 $ 528,305 $ 476,043 $ 479,524 $ 479,764 $ 480,506 1,408 N/A 2013 505,569 456,098 419,238 411,751 411,244 1,572 N/A 2014 599,886 546,124 501,195 445,950 7,250 N/A 2015 572,741 442,366 442,460 21,359 N/A 2016 538,515 509,642 72,123 N/A 2017 909,349 322,168 N/A $ 3,199,151 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 206,138 $ 336,226 $ 406,317 $ 430,935 $ 444,579 $ 455,715 2013 139,602 279,575 334,994 366,226 380,369 2014 167,362 291,893 360,863 393,241 2015 149,495 270,540 341,937 2016 159,858 294,628 2017 280,649 $ 2,146,540 All outstanding liabilities prior to 2012, net of reinsurance 103,727 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 1,156,337 (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 6 Property 34.5% 28.4% 14.9% 6.6% 3.1% 2.3% Bermuda – Casualty Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 288,697 $ 266,090 $ 245,087 $ 234,742 $ 241,295 $ 242,044 49,365 N/A 2013 231,658 262,083 256,555 265,366 255,034 85,969 N/A 2014 214,950 247,916 265,623 261,968 125,790 N/A 2015 282,046 309,169 314,580 150,231 N/A 2016 300,633 358,834 210,524 N/A 2017 362,365 286,954 N/A $ 1,794,825 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 13,377 $ 30,638 $ 52,690 $ 77,461 $ 104,005 $ 132,402 2013 17,517 34,814 53,401 78,677 104,610 2014 13,929 25,538 43,779 69,033 2015 14,318 62,136 96,964 2016 48,492 87,950 2017 31,158 $ 522,117 All outstanding liabilities prior to 2012, net of reinsurance 478,609 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 1,751,317 (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 6 Casualty 7.7% 9.3% 8.7% 9.9% 10.6% 11.7% Bermuda – Property Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 242,489 $ 184,894 $ 169,173 $ 164,846 $ 165,056 $ 165,817 737 N/A 2013 211,458 153,464 136,667 127,106 126,436 399 N/A 2014 185,865 164,884 138,821 135,607 2,741 N/A 2015 196,374 162,783 149,996 12,333 N/A 2016 211,265 180,278 52,012 N/A 2017 405,011 254,550 N/A $ 1,163,145 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 46,925 $ 87,774 $ 119,980 $ 146,835 $ 153,521 $ 156,471 2013 32,790 71,070 112,539 119,844 121,912 2014 29,932 86,034 106,632 127,117 2015 34,305 75,459 114,061 2016 27,748 79,795 2017 40,462 $ 639,818 All outstanding liabilities prior to 2012, net of reinsurance 41,326 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 564,654 (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 6 Property 18.2% 30.1% 23.0% 12.8% 3.0% 1.8% Insurance – Casualty Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 349,831 $ 351,636 $ 347,165 $ 348,331 $ 353,459 $ 344,074 30,569 15,956 2013 393,819 393,629 393,066 393,209 351,451 43,549 20,755 2014 431,503 457,475 455,004 461,061 132,391 25,009 2015 520,192 528,841 536,494 207,887 26,472 2016 554,546 556,966 276,184 30,384 2017 618,939 474,699 26,419 $ 2,868,985 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 33,202 $ 101,311 $ 157,947 $ 213,520 $ 246,496 $ 272,165 2013 33,317 117,054 176,338 224,652 260,257 2014 41,197 124,955 201,725 256,954 2015 44,322 134,787 219,105 2016 54,747 164,415 2017 53,926 $ 1,226,821 All outstanding liabilities prior to 2012, net of reinsurance 492,565 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 2,134,728 (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 6 Casualty 9.1% 19.4% 16.4% 13.8% 9.9% 7.5% Insurance – Property Business At December 31, 2017 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 2017 on Reported Number of Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Claims Reported Claims (Dollars in thousands) 2012 $ 106,397 $ 89,072 $ 81,797 $ 82,500 $ 82,068 $ 81,851 52 N/A 2013 112,122 98,290 91,407 92,292 92,381 509 N/A 2014 131,817 123,811 120,044 119,576 1,064 N/A 2015 173,196 153,145 144,202 (1,388 ) N/A 2016 303,241 276,110 (612 ) N/A 2017 526,318 186,608 N/A $ 1,240,439 (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 2017 Accident Year (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (Dollars in thousands) 2012 $ 56,508 $ 81,820 $ 80,519 $ 81,800 $ 81,940 $ 81,731 2013 68,726 93,241 91,989 92,259 91,868 2014 81,875 116,135 118,327 118,323 2015 102,300 141,494 142,670 2016 162,930 250,221 2017 206,938 $ 891,750 All outstanding liabilities prior to 2012, net of reinsurance 1,258 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 349,948 (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 6 Property 63.5% 29.5% 0.2% 0.5% -0.1% -0.3% 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, 2017 (Dollars in thousands) Net outstanding liabilities U.S. Reinsurance Casualty $ 2,259,543 U.S. Reinsurance Property 1,525,631 International Casualty 758,977 International Property 1,156,337 Bermuda Casualty 1,751,317 Bermuda Property 564,654 Insurance Casualty 2,134,728 Insurance Property 349,948 Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 10,501,136 Reinsurance recoverable on unpaid claims U.S. Reinsurance Casualty 110,852 U.S. Reinsurance Property 192,205 International Casualty 92,937 International Property 116,737 Bermuda Casualty 2,975 Bermuda Property 144,242 Insurance Casualty 492,606 Insurance Property 60,095 Total reinsurance recoverable on unpaid claims 1,212,649 Insurance lines other than short-duration - Unallocated claims adjustment expenses 136,611 Other 33,925 170,536 Total gross liability for unpaid claims and claim adjustment expense $ 11,884,321 (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 200 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 Mt. McKinley's 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) 2017 2016 2015 Gross basis: Beginning of period reserves $ 441,111 $ 433,117 $ 476,205 Incurred losses 90,009 73,336 40,000 Paid losses (82,126 ) (65,342 ) (83,088 ) End of period reserves $ 448,994 $ 441,111 $ 433,117 Net basis: Beginning of period reserves $ 319,072 $ 319,620 $ 458,211 Incurred losses 37,137 53,909 38,440 Paid losses (38,128 ) (54,457 ) (177,031 ) End of period reserves $ 318,081 $ 319,072 $ 319,620 On July 13, 2015, the Company sold Mt. McKinley, a Delaware domiciled insurance company and wholly-owned subsidiary of the Company to Clearwater Insurance Company, a Delaware domiciled insurance company. Concurrently with the closing, the Company entered into a retrocession treaty with an affiliate of Clearwater Insurance Company. Per the retrocession treaty, the Company retroceded 100 140,279 440,279 300,000 Reinsurance Receivables. Reinsurance receivables for both paid and recoverable on unpaid losses totaled $ 1,348,226 1,018,325 356,556 26.4 153,815 11.4 113,922 8.4 98,121 7.3 82,234 6.1 5 Future Policy Benefit Reserve. Activity in the reserve for future policy benefits is summarized for the periods indicated: At December 31, (Dollars in thousands) 2017 2016 2015 Balance at beginning of year $ 55,074 $ 58,910 $ 59,820 Liabilities assumed 115 175 315 Adjustments to reserves (437 ) 303 2,310 Benefits paid in the current year (3,738 ) (4,315 ) (3,535 ) Balance at end of year $ 51,014 $ 55,074 $ 58,910 (Some amounts may not reconcile due to rounding.) |