RESERVE FOR CLAIMS AND CLAIM EXPENSES

General Description

The Company believes the most significant accounting judgment made by management is its estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts the Company sells. The Company establishes its claims and claim expense reserves by taking claims reported to the Company by insureds and ceding companies, but which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred but not yet reported to the Company, or incurred but not enough reported to the Company (collectively referred to as “IBNR”) and, if deemed necessary, adding costs for additional case reserves which represent the Company’s estimates for claims related to specific contracts previously reported to the Company which it believes may not be adequately estimated by the client as of that date, or adequately covered in the application of IBNR.

On March 2, 2015 the Company acquired Platinum and the transaction was accounted for under the acquisition method of accounting in accordance with FASB ASC Topic Business Combinations. Total consideration paid was allocated among acquired assets and assumed liabilities based on their fair values, including Platinum’s claims and claim expense reserves, which totaled $1.4 billion at March 2, 2015, and consisted of $179.7 million and $1.2 billion included in the Company’s Property and Casualty and Specialty segments, respectively. These claims and claim expense reserves are subject to the reserving methodologies for each respective line of business as described below.

The following table summarizes the Company’s claims and claim expense reserves by segment, allocated between case reserves, additional case reserves and IBNR:




At December 31, 2017	Case Reserves		Additional Case Reserves		IBNR		Total
Property	$	696,285	$	896,522	$	893,583	$	2,486,390
Casualty and Specialty	689,962		124,923		1,760,607		2,575,492
Other	6,605		—		11,921		18,526
Total	$	1,392,852	$	1,021,445	$	2,666,111	$	5,080,408

At December 31, 2016
Property	$	214,954	$	186,308	$	226,512	$	627,774
Casualty and Specialty	591,705		105,419		1,498,002		2,195,126
Other	6,935		—		18,459		25,394
Total	$	813,594	$	291,727	$	1,742,973	$	2,848,294

Activity in the liability for unpaid claims and claim expenses is summarized as follows:




Year ended December 31,	2017			2016			2015
Net reserves as of January 1	$	2,568,730		$	2,632,519		$	1,345,816
Net incurred related to:
Current year	1,902,424			694,957			610,685
Prior years	(40,996		)	(164,126		)	(162,447		)
Total net incurred	1,861,428			530,831			448,238
Net paid related to:
Current year	450,527			83,015			95,747
Prior years	524,298			506,279			425,565
Total net paid	974,825			589,294			521,312
Amounts acquired (1)	—			—			1,394,117
Foreign exchange	38,445			(5,326		)	(34,340		)
Net reserves as of December 31	3,493,778			2,568,730			2,632,519
Reinsurance recoverable as of December 31	1,586,630			279,564			134,526
Gross reserves as of December 31	$	5,080,408		$	2,848,294		$	2,767,045


(1)	Represents the fair value of Platinum's reserve for claims and claim expenses and reinsurance recoverable acquired at March 2, 2015.

The Company’s reserving methodology for each line of business uses a loss reserving process that calculates a point estimate for its ultimate settlement and administration costs for claims and claim expenses. The Company does not calculate a range of estimates and does not discount any of its reserves for claims and claim expenses. The Company uses this point estimate, along with paid claims and case reserves, to record its best estimate of additional case reserves and IBNR in its consolidated financial statements. Under GAAP, the Company is not permitted to establish estimates for catastrophe claims and claim expense reserves until an event occurs that gives rise to a loss.

Reserving for reinsurance claims involves other uncertainties, such as the dependence on information from ceding companies, the time lag inherent in reporting information from the primary insurer to the Company or to the Company’s ceding companies, and differing reserving practices among ceding companies. The information received from ceding companies is typically in the form of bordereaux, broker notifications of loss and/or discussions with ceding companies or their brokers. This information may be received on a monthly, quarterly or transactional basis and normally includes paid claims and estimates of case reserves. The Company sometimes also receives an estimate or provision for IBNR. This information is often updated and adjusted from time to time during the loss settlement period as new data or facts in respect of initial claims, client accounts, industry or event trends may be reported or emerge in addition to changes in applicable statutory and case laws.

The Company’s estimates of losses from large events are based on factors including currently available information derived from claims information from certain customers and brokers, industry assessments of losses from the events, proprietary models, and the terms and conditions of the Company’s contracts. The uncertainty of the Company’s estimates for large events is also impacted by the preliminary nature of the information available, the magnitude and relative infrequency of the events, the expected duration of the respective claims development period, inadequacies in the data provided to the relevant date by industry participants and the potential for further reporting lags or insufficiencies; and in certain large events, significant uncertainty as to the form of the claims and legal issues, under the relevant terms of insurance and reinsurance contracts. In addition, a significant portion of the net claims and claim expenses associated with certain large events can be concentrated with a few large clients and therefore the loss estimates for these events may vary significantly based on the claims experience of those clients. The contingent nature of business interruption and other exposures will also impact losses in a meaningful way, which may give rise to significant complexity in respect of claims handling, claims adjustment and other coverage issues, over time. Given the magnitude of certain events, there can be meaningful uncertainty regarding total covered losses for the insurance industry and, accordingly, several of the key assumptions underlying the Company's loss estimates. Loss reserve estimation in respect of the Company's retrocessional contracts poses further challenges compared to directly assumed reinsurance. In addition, the Company’s actual net losses from these events may increase if the Company’s reinsurers or other obligors fail to meet their obligations.

Because of the inherent uncertainties discussed above, the Company has developed a reserving philosophy that attempts to incorporate prudent assumptions and estimates, and the Company has generally experienced favorable net development on prior accident years net claims and claim expenses in the last several years. However, there is no assurance that this favorable development on prior accident years net claims and claim expenses will occur in future periods.

The Company establishes a provision for unallocated loss adjustment expenses ("ULAE") when the related reserve for claims and claim expenses is established. ULAE are expenses that cannot be associated with a specific claim but are related to claims paid or in the process of settlement, such as internal costs of the claims function, and are included in the reserve for claims and claim expenses. The determination of the ULAE provision is subject to judgment.

The Company reevaluates its actuarial reserving techniques on a periodic basis. Typically, the quarterly review procedures include reviewing paid and reported claims in the most recent reporting period, reviewing the development of paid and reported claims from prior periods, and reviewing the Company’s overall experience by underwriting year and in the aggregate. The Company monitors its expected ultimate claims and claim expense ratios and expected claims reporting assumptions on a quarterly basis and compares them to its actual experience. These actuarial assumptions are generally reviewed annually, based on input from the Company’s actuaries, underwriters, claims personnel and finance professionals, although adjustments may be made more frequently if needed. Assumption changes are made to adjust for changes in the pricing and terms of coverage the Company provides, changes in industry results for similar business, as well as its actual experience to the extent the Company has enough data to rely on its own experience. If the Company determines that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the period in which they are identified.

Incurred and Paid Claims Development and Reserving Methodology

The information provided herein about incurred and paid accident year claims development for the years ended prior to December 31, 2017 on a consolidated basis and by segment is presented as supplementary information. The Company applied a retrospective approach with respect to its acquisition of Platinum, presenting all relevant historical information for all periods presented. In addition, included in the incurred claims and claim expenses and cumulated paid claims and claim expenses tables below is a reconciling item that represents the unamortized balance of fair value adjustments recorded in connection with the acquisition of Platinum to reflect an increase in net claims and claim expenses due to the addition of a market based risk margin that represented the cost of capital required by a market participant to assume the net claims and claim expenses of Platinum.

For incurred and paid accident year claims denominated in foreign currency, the Company used the current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from the incurred and paid accident year claims development information included in the tables below.

The following table details the Company’s consolidated incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2017, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2017
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	1,459,436	$	1,421,816	$	1,401,967	$	1,383,378	$	1,310,946	$	1,288,248	$	1,266,331	$	1,256,183	$	1,239,405	$	1,241,116	$	44,189
2009	—		711,042		645,608		628,671		589,136		563,850		542,653		533,597		528,693		531,523		23,021
2010	—		—		1,016,922		975,846		927,941		897,148		896,219		886,997		895,201		894,050		76,527
2011	—		—		—		1,670,722		1,604,273		1,523,332		1,441,370		1,413,256		1,375,169		1,361,430		89,094
2012	—		—		—		—		867,675		773,367		710,123		683,784		655,602		658,180		94,086
2013	—		—		—		—		—		625,081		564,791		518,266		477,294		450,984		86,709
2014	—		—		—		—		—		—		664,603		617,617		605,648		586,559		83,121
2015	—		—		—		—		—		—		—		642,977		631,559		634,948		240,331
2016	—		—		—		—		—		—		—		—		684,960		691,472		358,843
2017	—		—		—		—		—		—		—		—		—		1,901,309		1,334,903
Total																			$	8,951,571	$	2,430,824

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	275,963	$	593,570	$	800,202	$	940,911	$	1,016,658	$	1,064,412	$	1,095,431	$	1,123,287	$	1,145,149	$	1,164,647
2009	—		96,574		271,031		323,183		367,996		400,991		440,320		462,407		468,759		476,298
2010	—		—		131,436		325,377		444,618		516,321		572,829		644,975		737,478		764,337
2011	—		—		—		259,261		550,668		909,176		1,067,386		1,158,233		1,202,703		1,230,285
2012	—		—		—		—		166,907		267,650		358,789		418,697		462,253		527,153
2013	—		—		—		—		—		87,837		181,738		246,582		292,542		330,184
2014	—		—		—		—		—		—		111,451		201,873		270,380		319,540
2015	—		—		—		—		—		—		—		96,141		195,140		289,630
2016	—		—		—		—		—		—		—		—		79,943		219,416
2017	—		—		—		—		—		—		—		—		—		450,886
Total																			$	5,772,376
Outstanding liabilities from accident year 2007 and prior, net of reinsurance																			282,782
Claims and claim expenses, net of reinsurance, from the Company's former Bermuda-based insurance operations																			673
Adjustment for unallocated claim expenses																			23,694
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			7,434
Liability for claims and claim expenses, net of reinsurance																			$	3,493,778

Property Segment

Within the Property segment, the Company principally writes property catastrophe excess of loss reinsurance contracts to insure insurance and reinsurance companies against natural and man-made catastrophes. Under these contracts, the Company indemnifies an insurer or reinsurer when its aggregate paid claims and claim expenses from a single occurrence of a covered peril exceeds the attachment point specified in the contract, up to an amount per loss specified in the contract. The Company's most significant exposure is to losses from hurricanes, earthquakes and other windstorms, although the Company is also exposed to claims arising from other catastrophes, such as tsunamis, winter storms, freezes, floods, fires, tornadoes, explosions and acts of terrorism. The Company's predominant exposure under such coverage is to property damage. However, other risks, including business interruption and other non-property losses, may also be covered under the Company's catastrophe contracts when arising from a covered peril. The Company's coverages are offered on either a worldwide basis or are limited to selected geographic areas.

Coverage can also vary from “all property” perils to limited coverage on selected perils, such as “earthquake only” coverage. The Company also enters into retrocessional contracts that provide property catastrophe coverage to other reinsurers or retrocedants. This coverage is generally in the form of excess of loss retrocessional contracts and may cover all perils and exposures on a worldwide basis or be limited in scope to selected geographic areas, perils and/or exposures. The exposures the Company assumes from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after the retrocessional coverage has been bound. The Company also offers dual trigger reinsurance contracts which require the Company to pay claims based on claims incurred by insurers and reinsurers in addition to the estimate of insured industry losses as reported by referenced statistical reporting agencies.

Also included in the Property segment is property per risk, property (re)insurance, binding facilities and regional U.S. multi-line reinsurance. The Company's predominant exposure under such coverage is to property damage. However, other risks, including business interruption and other non-property losses, may also be covered when arising from a covered peril. The Company's coverages are offered on either a worldwide basis or are limited to selected geographic areas. The exposures assumed from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after the retrocessional coverage has been bound. The Company offers these products principally through proportional coverage. In a proportional reinsurance arrangement (also referred to as quota share reinsurance or pro rata reinsurance), the reinsurer shares a proportional part of the original premiums and losses of the reinsured.

Claims and claim expenses in the Company's Property segment are generally characterized by loss events of low frequency and high severity. Initial reporting of paid and incurred claims in general, tends to be relatively prompt. The Company considers this business “short-tail” as compared to the reporting of claims for “long-tail” products, which tends to be slower. However, the timing of claims payment and reporting also varies depending on various factors, including: whether the claims arise under reinsurance of primary insurance companies or reinsurance of other reinsurance companies; the nature of the events (e.g., hurricanes, earthquakes or terrorism); the geographic area involved; post-event inflation which may cause the cost to repair damaged property to increase significantly from current estimates, or for property claims to remain open for a longer period of time, due to limitations on the supply of building materials, labor and other resources; complex policy coverage and other legal issues; and the quality of each client’s claims management and reserving practices. Management’s judgments regarding these factors are reflected in the Company's reserve for claims and claim expenses.

Reserving for most of the Company's Property segment generally does not involve the use of traditional actuarial techniques. Rather, claims and claim expense reserves are estimated by management after a catastrophe occurs by completing an in-depth analysis of the individual contracts which may potentially be impacted by the catastrophic event. The in-depth analysis generally involves: 1) estimating the size of insured industry losses from the catastrophic event; 2) reviewing reinsurance contract portfolios to identify contracts which are exposed to the catastrophic event; 3) reviewing information reported by customers and brokers; 4) discussing the event with customers and brokers; and 5) estimating the ultimate expected cost to settle all claims and administrative costs arising from the catastrophic event on a contract-by-contract basis and in aggregate for the event. Once an event has occurred, during the then current reporting period, the Company records its best estimate of the ultimate expected cost to settle all claims arising from the event. The Company's estimate of claims and claim expense reserves is then determined by deducting cumulative paid losses from its estimate of the ultimate expected loss for an event. The Company’s estimate of IBNR is determined by deducting cumulative paid losses, case reserves and additional case reserves from its estimate of the ultimate expected loss for an event. Once the Company receives a valid notice of loss or payment request under a catastrophe reinsurance contract, it is generally able to process and pay such claims promptly.

Because the events from which claims arise under policies written within the Property segment are typically prominent, public occurrences such as hurricanes and earthquakes, the Company is often able to use independent reports as part of its loss reserve estimation process. The Company also reviews catastrophe bulletins published by various statistical reporting agencies to assist in determining the size of the industry loss, although these reports may not be available for some time after an event.

For smaller events including localized severe weather events such as windstorms, hail, ice, snow, flooding, freezing and tornadoes, which are not necessarily prominent, public occurrences, the Company initially places greater reliance on catastrophe bulletins published by statistical reporting agencies to assist in determining what events occurred during the reporting period than the Company does for large events. This includes reviewing catastrophe bulletins published by Property Claim Services (“PCS”) for U.S. catastrophes. The Company sets its initial estimates of reserves for claims and claim expenses for these smaller events based on a combination of its historical market share for these types of losses and the estimate of the total insured industry property losses as reported by statistical reporting agencies, although management may make significant adjustments based on the Company's current exposure to the geographic region involved as well as the size of the loss and the peril involved. This approach supplements the Company's approach for estimating losses for larger catastrophes, which as discussed above, includes discussions with brokers and ceding companies and reviewing individual contracts impacted by the event. Approximately one year from the date of loss for these small events, the Company typically estimates IBNR for these events by using the paid Bornhuetter-Ferguson actuarial method. The loss development factors for the paid Bornhuetter-Ferguson actuarial method are selected based on a review of the Company's historical experience. There were no significant changes to the Company's paid loss development factors over the last three years.

In general, reserves for the Company's more recent reinsured catastrophic events are subject to greater uncertainty and, therefore, greater potential variability, and are likely to experience material changes from one period to the next. This is due to the uncertainty as to the size of the industry losses from the event, uncertainty as to which contracts have been exposed to the catastrophic event, uncertainty due to complex legal and coverage issues that can arise out of large or complex catastrophic events, and uncertainty as to the magnitude of claims incurred by the Company's customers. As the Company's claims age, more information becomes available and the Company believes its estimates become more certain.

The following table details the Company’s Property segment incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2017, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2017
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	852,500	$	754,840	$	754,393	$	750,523	$	716,537	$	701,522	$	692,225	$	684,834	$	683,757	$	683,374	$	130
2009	—		224,928		169,191		149,830		143,232		138,899		139,676		138,948		139,167		138,732		238
2010	—		—		632,510		584,878		550,608		555,419		576,079		580,084		590,023		592,679		43,479
2011	—		—		—		1,286,890		1,221,811		1,170,141		1,118,651		1,098,124		1,066,200		1,063,035		41,910
2012	—		—		—		—		438,548		345,168		312,216		294,400		276,236		265,058		24,297
2013	—		—		—		—		—		230,355		200,105		177,533		155,384		143,823		5,264
2014	—		—		—		—		—		—		184,076		155,335		147,610		143,419		8,018
2015	—		—		—		—		—		—		—		227,093		196,094		177,296		32,432
2016	—		—		—		—		—		—		—		—		254,595		256,759		91,193
2017	—		—		—		—		—		—		—		—		—		1,345,006		857,673
Total																			$	4,809,181	$	1,104,634

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	247,123	$	392,800	$	541,278	$	631,204	$	664,217	$	678,266	$	681,988	$	683,821	$	685,229	$	685,874
2009	—		56,244		102,402		117,045		125,021		131,136		135,756		136,806		137,783		137,775
2010	—		—		96,570		226,433		308,198		352,293		389,954		417,446		496,324		506,297
2011	—		—		—		211,151		437,082		763,384		891,928		951,725		978,298		992,272
2012	—		—		—		—		100,067		145,326		189,555		209,059		219,069		231,272
2013	—		—		—		—		—		49,805		94,776		120,117		131,293		135,499
2014	—		—		—		—		—		—		55,365		96,667		119,473		124,533
2015	—		—		—		—		—		—		—		62,358		109,386		128,434
2016	—		—		—		—		—		—		—		—		47,716		119,977
2017	—		—		—		—		—		—		—		—		—		412,477
Total																			$	3,474,410
Outstanding liabilities from accident year 2007 and prior, net of reinsurance																			4,211
Adjustment for unallocated claim expenses																			3,352
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			956
Liability for claims and claim expenses, net of reinsurance																			$	1,343,290

Casualty and Specialty Segment

The Company offers its casualty and specialty reinsurance products principally on a proportional basis, and it also provides excess of loss coverage. The Company offers casualty and specialty reinsurance products to insurance and reinsurance companies and provides coverage for specific geographic regions or on a worldwide basis. Principally all of the business is reinsurance, although from time to time, the Company writes insurance business.

As with the Company's Property segment, its Casualty and Specialty segment reinsurance contracts can include coverage for relatively large limits or exposures. As a result, the Company's casualty and specialty reinsurance business can be subject to significant claims volatility. In periods of low claims frequency or severity, the Company's results will generally be favorably impacted while in periods of high claims frequency or severity the Company's results will generally be negatively impacted.

More recently, the Company has accepted a wider range of proportional risks, facilitating the Company's efforts to expand its product offerings. In addition, on March 2, 2015 the Company acquired Platinum and recorded $1.4 billion of claims and claim expense reserves related to the acquisition, of which $1.2 billion was recorded in the Casualty and Specialty segment, with the balance recorded in the Company's Property segment. While the Company remains focused on underwriting discipline, and seeks to remain focused on opportunities amenable to stochastic representation and supported by strong data and analytics, the Company's expanded casualty and specialty product suite and the addition of the claims and claim expense reserves acquired through the Platinum transaction, may pose new, unmodelled or unforeseen risks for which the Company may not be adequately compensated and may also result in a higher level of attritional claims and claim expenses and the potential for reserve development, either adverse or favorable.

The Company's processes and methodologies in respect of loss estimation for the coverages offered through its Casualty and Specialty segment differ from those used for its Property segment. For example, the Company's casualty and specialty coverages are more likely to be impacted by factors such as long-term inflation and changes in the social and legal environment, which the Company believes gives rise to greater uncertainty in its reserves for claims and claim expenses. Moreover, in many lines of business the Company does not have the benefit of a significant amount of its own historical experience and may have little or no related corporate reserving history in many of its newer or growing lines of business. The Company believes this makes its Casualty and Specialty segment reserving subject to greater uncertainty than its Property segment.

The Company calculates multiple point estimates for claims and claim expense reserves using a variety of actuarial reserving techniques for many, but not all, of its classes of business for each underwriting year within the Casualty and Specialty segment. The Company does not believe that these multiple point estimates are, or should be considered a range. Rather, the Company considers each class of business and determines the most appropriate point estimate for each underwriting year based on the characteristics of the particular class including: (1) loss development patterns derived from historical data; (2) the credibility of the selected loss development pattern; (3) the stability of the loss development patterns; (4) how developed the underwriting year is; and (5) the observed loss development of other underwriting years for the same class. The Company also considers other relevant factors, including: (1) historical ultimate loss ratios; (2) the presence of individual large losses; and (3) known occurrences that have not yet resulted in reported losses. The Company makes determinations of the most appropriate point estimate of loss for each class based on an evaluation of relevant information and do not ascribe any particular portion of the estimate to a particular factor or consideration. In addition, the Company believes that a review of individual contract information improves the loss estimates for some classes of business.

When developing claims and claims expense reserves for the Company's Casualty and Specialty segment, it considers several actuarial techniques such as the expected loss ratio method, the Bornhuetter-Ferguson actuarial method and the paid and reported chain ladder actuarial method.

For classes of business and underwriting years where the Company has limited historical claims experience, estimates of ultimate losses that are not related to a specific event are generally initially determined based on the loss ratio method applied to each underwriting year and to each class of business. Unless the Company has credible claims experience or unfavorable development, it generally selects an ultimate loss based on its initial view of the loss. The selected ultimate losses are determined by multiplying the initial expected loss ratio by the earned premium. The initial expected loss ratios are key inputs that involve management judgment and are based on a variety of factors, including: (1) contract by contract expected loss ratios developed during the Company’s pricing process; (2) historical loss ratios and combined ratios adjusted for rate change and trend; and (3) industry benchmarks for similar business. These judgments take into account management’s view of past, current and future factors that may influence ultimate losses, including: (1) market conditions; (2) changes in the business underwritten; (3) changes in timing of the emergence of claims; and (4) other factors that may influence ultimate loss ratios and losses.

The determination of when reported losses are sufficient and credible to warrant selection of an ultimate loss ratio different from the initial expected loss ratios also requires judgment. The Company generally makes adjustments for reported loss experience indicating unfavorable variances from initial expected loss ratios sooner than reported loss experience indicating favorable variances. This is because the reporting of losses in excess of expectations tends to have greater credibility than an absence or lower than expected level of reported losses. Over time, as a greater number of claims are reported and the credibility of reported losses improves, actuarial estimates of IBNR are typically based on the Bornhuetter-Ferguson actuarial method or the reported chain ladder actuarial method.

The Bornhuetter-Ferguson method allows for greater weight to be applied to expected results in periods where little or no actual experience is available, and, hence, is less susceptible to the potential pitfall of being excessively swayed by one year or one quarter of actual paid and/or reported loss data, compared to the chain ladder actuarial method. The Bornhuetter-Ferguson method uses initial expected loss ratio expectations to the extent that the expected paid or reported losses are zero, and it assumes that past experience is not fully representative of the future. As the Company’s reserves for claims and claim expenses age, and actual claims experience becomes available, this method places less weight on expected experience and places more weight on actual experience. This experience, which represents the difference between expected reported claims and actual reported claims, is reflected in the respective reporting period as a change in estimate. The utilization of the Bornhuetter-Ferguson method requires the Company to estimate an expected ultimate claims and claim expense ratio and select an expected loss reporting pattern. The Company selects its estimates of the expected ultimate claims and claim expense ratios as described above and selects its expected loss reporting patterns by utilizing actuarial analysis, including management’s judgment, and historical patterns of paid losses and reporting of case reserves to the Company, as well as industry loss development patterns. The estimated expected claims and claim expense ratio may be modified to the extent that reported losses at a given point in time differ from what would be expected based on the selected loss reporting pattern.

The reported chain ladder actuarial method utilizes actual reported losses and a loss development pattern to determine an estimate of ultimate losses that is independent of the initial expected ultimate loss ratio and earned premium. The Company believes this technique is most appropriate when there are a large number of reported losses with significant statistical credibility and a relatively stable loss development pattern. Information that may cause future loss development patterns to differ from historical loss development patterns is considered and reflected in the Company’s selected loss development patterns as appropriate. For certain reinsurance contracts, historical loss development patterns may be developed from ceding company data or other sources.

In addition, certain casualty and specialty coverages may be impacted by natural and man-made catastrophes. The Company estimates reserves for claim and claim expenses for these losses after the event giving rise to these losses occurs, following a process that is similar to its Property segment described above.

The following table details the Company’s Casualty and Specialty segment incurred claims and claim expenses and cumulative paid claims and claim expenses as of December 31, 2017, net of reinsurance, as well as IBNR plus ACR included within the net incurred claims amounts.




	Incurred claims and claim expenses, net of reinsurance
	For the year ended December 31,																				At December 31, 2017
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR and ACR
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	606,936	$	666,976	$	647,574	$	632,855	$	594,409	$	586,726	$	574,106	$	571,349	$	555,648	$	557,742	$	44,059
2009	—		486,114		476,417		478,841		445,904		424,951		402,977		394,649		389,526		392,791		22,783
2010	—		—		384,412		390,968		377,333		341,729		320,140		306,913		305,178		301,371		33,048
2011	—		—		—		383,832		382,462		353,191		322,719		315,132		308,969		298,395		47,184
2012	—		—		—		—		429,127		428,199		397,907		389,384		379,366		393,122		69,789
2013	—		—		—		—		—		394,726		364,686		340,733		321,910		307,161		81,445
2014	—		—		—		—		—		—		480,527		462,282		458,038		443,140		75,103
2015	—		—		—		—		—		—		—		415,884		435,465		457,652		207,899
2016	—		—		—		—		—		—		—		—		430,365		434,713		267,650
2017	—		—		—		—		—		—		—		—		—		556,303		477,230
Total																			$	4,142,390	$	1,326,190

	Cumulative paid claims and claim expenses, net of reinsurance
	For the year ended December 31,
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2008	$	28,840	$	200,770	$	258,924	$	309,707	$	352,441	$	386,146	$	413,443	$	439,466	$	459,920	$	478,773
2009	—		40,330		168,629		206,138		242,975		269,855		304,564		325,601		330,976		338,523
2010	—		—		34,866		98,944		136,420		164,028		182,875		227,529		241,154		258,040
2011	—		—		—		48,110		113,586		145,792		175,458		206,508		224,405		238,013
2012	—		—		—		—		66,840		122,324		169,234		209,638		243,184		295,881
2013	—		—		—		—		—		38,032		86,962		126,465		161,249		194,685
2014	—		—		—		—		—		—		56,086		105,206		150,907		195,007
2015	—		—		—		—		—		—		—		33,783		85,754		161,196
2016	—		—		—		—		—		—		—		—		32,227		99,439
2017	—		—		—		—		—		—		—		—		—		38,409
Total																			$	2,297,966
Outstanding liabilities from accident year 2007 and prior, net of reinsurance																			278,571
Adjustment for unallocated claim expenses																			20,342
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum																			6,478
Liability for claims and claim expenses, net of reinsurance																			$	2,149,815

Prior Year Development of the Reserve for Net Claims and Claim Expenses

The Company’s estimates of claims and claim expense reserves are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of the Company’s reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer’s estimate at a point in time of its ultimate liability, and because there are numerous factors that affect reserves and claims payments that cannot be determined with certainty in advance, the Company’s ultimate payments will vary, perhaps materially, from its estimates of reserves. If the Company determines in a subsequent period that adjustments to its previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. On a net basis, the Company’s cumulative favorable or unfavorable development is generally reduced by offsetting changes in its reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums and redeemable noncontrolling interest for changes in claims and claim expenses that impact DaVinciRe, all of which generally move in the opposite direction to changes in the Company’s ultimate claims and claim expenses.

The following table details the Company’s prior year development by segment of its liability for unpaid claims and claim expenses:




Year ended December 31,	2017			2016			2015
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Property	$	(45,596	)	$	(104,876	)	$	(93,786	)
Casualty and Specialty	6,183			(58,140		)	(67,791		)
Other	(1,583		)	(1,110		)	(870		)
Total favorable development of prior accident years net claims and claim expenses	$	(40,996	)	$	(164,126	)	$	(162,447	)

Changes to prior year estimated claims reserves decreased the Company’s net loss by $41.0 million during 2017 (2016 - increased the Company’s net income by $164.1 million, 2015 - increased the Company’s net income by $162.4 million), excluding the consideration of changes in reinstatement, adjustment or other premium changes, profit commissions, redeemable noncontrolling interest - DaVinciRe and income tax.

Property Segment

The following tables and discussion detail the development of the Company’s liability for unpaid claims and claim expenses for its Property segment, allocated between large and small catastrophe net claims and claim expenses and attritional net claims and claim expenses, included in the other line item:




Year ended December 31,	2017
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
Storm Sandy (2012)	$	(4,395	)
April and May U.S. Tornadoes (2011)	(4,177		)
Thailand Floods (2011)	(2,513		)
Hurricane Matthew (2016)	(1,239		)
New Zealand Earthquake (2011)	5,807
New Zealand Earthquake (2010)	4,061
Other	(5,184		)
Total large catastrophe events	(7,640		)
Small catastrophe events
2016 PCS Events (2016)	(18,550		)
Tianjin Explosion (2015)	(8,002		)
Fort McMurray Wildfire (2016)	(6,364		)
Other	(5,882		)
Total small catastrophe events	(38,798		)
Total catastrophe net claims and claim expenses	(46,438		)
Actuarial assumption changes	842
Total net favorable development of prior accident years net claims and claim expenses	$	(45,596	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2017 of $45.6 million was comprised of net favorable development of $7.6 million related to large catastrophe events, net favorable development of $38.8 million related to small catastrophe events and $0.8 million of adverse development associated with actuarial assumption changes. Included in net favorable development of prior accident years net claims and claim expenses from large events was a number of relatively small net decreases in the estimated ultimate losses associated with a number of events from prior accident years. Included in net favorable development of prior accident years net claims and claims expenses from small events was a reduction in the estimated ultimate losses associated with the 2016 PCS Events of $18.6 million, the 2015 Tianjin Explosion of $8.0 million and the 2016 Fort McMurray Wildfire of $6.4 million. In addition, the Company’s Property segment experienced net favorable development of $5.9 million associated with a number of other small catastrophe events.




Year ended December 31,	2016
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
Thailand Floods (2011)	$	(15,131	)
Storm Sandy (2012)	(10,849		)
Tohoku Earthquake and Tsunami (2011)	(7,314		)
New Zealand Earthquake (2011)	1,987
New Zealand Earthquake (2010)	6,904
Other	(9,523		)
Total large catastrophe events	(33,926		)
Small catastrophe events
U.S. PCS 13/14 Wind and Thunderstorm (2013)	(6,286		)
Tianjin Explosion (2015)	(5,686		)
U.S. PCS 15 Wind and Thunderstorm (2013)	(5,648		)
U.S. PCS 81 Wind and Thunderstorm (2015)	(5,098		)
Other	(48,232		)
Total small catastrophe events	(70,950		)
Total catastrophe net claims and claim expenses	(104,876		)
Total net favorable development of prior accident years net claims and claim expenses	$	(104,876	)

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2016 of $104.9 million was principally driven by $33.9 million and $71.0 million related to large and small catastrophes, respectively. Included in the net favorable development of prior accident years net claims and claim expenses associated with large catastrophes was favorable development of $15.1 million from the 2011 Thailand Floods, $10.8 million from Storm Sandy in 2012, $7.3 million from the 2011 Tohoku Earthquake and Tsunami, partially offset by adverse development of $6.9 million and $2.0 million related to the 2010 and 2011 New Zealand Earthquakes, respectively, each principally the result of changes in estimated ultimate losses for each respective event. Included in the favorable development of prior accident years net claims and claim expenses related to small catastrophe events were a number of wind and thunderstorm events, primarily from the 2013 and 2015 accident years totaling $17.0 million, and $5.7 million associated with the 2015 Tianjin Explosion, each principally the result of changes in estimated ultimate losses for each respective event, with the remainder due to a number of other large and small catastrophe events related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods.




Year ended December 31,	2015
	(Favorable) adverse development
Catastrophe net claims and claim expenses
Large catastrophe events
Thailand Floods (2011)	$	(18,823	)
Tohoku Earthquake and Tsunami (2011)	(5,313		)
New Zealand Earthquake (2011)	22,754
2011 International Events	(1,382		)
Storm Sandy (2012)	(12,503		)
April and May U.S. Tornadoes (2011)	(10,190		)
New Zealand Earthquake (2010)	1,095
Other	(11,300		)
Total large catastrophe events	(34,280		)
Small catastrophe events
Other	(58,005		)
Total small catastrophe events	(58,005		)
Total catastrophe net claims and claim expenses	(92,285		)
Actuarial assumption changes	(1,501		)
Total net favorable development of prior accident years net claims and claim expenses	$	(93,786	)

The favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in 2015 of $93.8 million was comprised of $34.3 million and $58.0 million related to large and small catastrophe events, respectively. Included in the favorable development of prior accident years net claims and claim expenses related to large catastrophe events was $12.5 million related to Storm Sandy and $10.2 million related to the April and May 2011 U.S. Tornadoes, each principally the result of changes in the Company’s estimated ultimate loss for each respective event. In addition, the Company experienced $69.3 million of favorable development related to a number of other large and small catastrophe events related to lines of business where the Company principally estimates net claims and claim expenses using traditional actuarial methods. Net favorable development of prior accident years net claims and claim expenses related to the 2011 New Zealand Earthquake, the 2011 Thailand Floods and the 2011 Tohoku Earthquake and Tsunami (collectively the “2011 International Events”) was $1.4 million and included reductions in reported losses on the 2011 Thailand Floods and Tohoku Earthquake and Tsunami, offset by a net increase in reported losses on the 2011 New Zealand Earthquake, with each respective movement principally driven by the same counterparties re-allocating losses among the 2011 International Events.

Casualty and Specialty Segment

The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Casualty and Specialty segment:




Year ended December 31,	2017			2016			2015
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Actuarial methods - actual reported claims less than expected claims	$	(24,836	)	$	(52,601	)	$	(72,551	)
Ogden Rate change	33,481			—			—
Actuarial assumption changes	(2,462		)	(5,539		)	4,760
Total favorable development of prior accident years net claims and claim expenses	$	6,183		$	(58,140	)	$	(67,791	)

The net adverse development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2017 of $6.2 million was driven by $33.5 million of adverse development associated with the change in the discount rate used to calculate lump sum awards in U.K. bodily injury cases (the “Ogden Rate”), from 2.5%, to minus 0.75%. Offsetting the adverse development due to the impact of the Ogden Rate change was $24.8 million of net favorable development in 2017 related to actual reported losses coming in lower than expected on attritional net claims and claim expenses across a number of lines of business and $2.5 million of net favorable development associated with actuarial assumption changes.

The favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2016 of $58.1 million was driven by $52.6 million related to the application of the Company’s formulaic actuarial reserving methodology with attritional net claims and claim expenses reported coming in lower than expected on prior accident years events and $5.5 million of favorable development associated with actuarial assumption changes.

The favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in 2015 of $67.8 million was driven by $72.6 million related to the application of the Company’s formulaic actuarial reserving methodology with attritional net claims and claim expenses reported coming in lower than expected on prior accident years events, partially offset by adverse development of $4.8 million associated with actuarial assumption changes.

Other

The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Other category:




Year ended December 31,	2017			2016			2015
	(Favorable) adverse development			(Favorable) adverse development			(Favorable) adverse development
Other	$	(1,583	)	$	(1,110	)	$	(870	)

The Company’s Other category experienced net favorable development on prior accident years net claims and claim expenses of $1.6 million in 2017 (2016 - $1.1 million; 2015 - $0.9 million).

Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Reserve for Claims and Claim Expenses

The reconciliation of the net incurred and paid claims development tables to the reserve for claims and claim expenses in the consolidated balance sheet is as follows:




At December 31, 2017
Net reserve for claims and claim expenses
Property	$	1,343,290
Casualty and Specialty	2,149,815
Other	673
Total net reserve for claims and claim expenses	3,493,778

Reinsurance recoverable
Property	$	1,143,100
Casualty and Specialty	425,677
Other	17,853
Total reinsurance recoverable	1,586,630
Total gross reserve for claims and claim expenses	$	5,080,408

Historical Claims Duration

The following is unaudited supplementary information about average historical claims duration by segment:




	Average annual percentage payout of incurred claims by age, net of reinsurance (number of years)
At December 31, 2017	1		2		3		4		5		6		7		8		9		10
Property	27.8	%	23.0	%	21.3	%	10.1	%	5.2	%	3.1	%	3.9	%	0.9	%	0.2	%	0.1	%
Casualty and Specialty	10.1	%	19.6	%	11.8	%	9.8	%	8.3	%	9.5	%	4.9	%	3.9	%	2.9	%	3.4	%

Claims Frequency

Each of the Company’s reportable segments are broadly considered to be assumed reinsurance, where multiple claims are often aggregated, perhaps multiple times through retrocessional reinsurance, before ultimately being ceded to the Company. In addition, the nature, size, terms and conditions of contracts entered into by the Company changes from one accident year to the next and the quantum of contractual or policy limits, and accordingly the potential amount of claims and claim expenses associated with a reported claim, can range from nominal, to significant. These factors can impact the amount and timing of the claims and claim expenses to be recorded and accordingly, developing claim frequency information is highly subjective and is not prepared or utilized for internal purposes. In addition, the Company does not have direct access to claim frequency information underlying certain of its proportional contracts given the nature of that business. As a result, the Company does not believe providing claim frequency information is practicable as it relates to its proportional contracts.

Notwithstanding the factors noted above, the Company has developed claims frequency information associated with its excess of loss reinsurance contracts. As each accident year develops, the Company would expect the cumulative number of reported claims to increase in certain of its excess of loss reinsurance contracts, most notably in its Casualty and Specialty segment. In determining claims frequency for its excess of loss reinsurance contracts, the Company has made the following assumptions:


•	Claims below the insured layer of a contract are excluded;


•	If an insured loss event results in claims associated with a number of layers of a contract, the Company would consider this to be a single claim; and


•	If an insured loss event results in claims associated with a number of the Company's operating subsidiaries, the Company considers each operating subsidiary to have a reported claim.

The following table details the Company's cumulative number of reported claims for its excess of loss reinsurance contracts allocated by segment:




	At December 31, 2017
	Cumulative number of reported claims
Accident Year	Property	Casualty and Specialty
2008	1,355	1,395
2009	743	1,112
2010	784	1,052
2011	1,184	1,367
2012	679	1,354
2013	628	1,409
2014	549	1,771
2015	591	1,569
2016	818	1,114
2017	1,173	313

Assumed Reinsurance Contracts Classified As Deposit Contracts

Net claims and claim expenses incurred were reduced by $0.2 million during 2017 (2016 – $0.2 million, 2015 – $0.3 million) related to income earned on assumed reinsurance contracts that were classified as deposit contracts with underwriting risk only. Other income was increased by $3.7 million during 2017 (2016 – $6.2 million, 2015 – $6.2 million) related to premiums and losses incurred on assumed reinsurance contracts that were classified as deposit contracts with timing risk only. Aggregate deposit liabilities of $21.7 million are included in reinsurance balances payable at December 31, 2017 (2016 – $25.7 million) and aggregate deposit assets of $Nil are included in other assets at December 31, 2017 (2016 – $Nil) associated with these contracts.