The following table presents a reconciliation of our beginning and ending gross reserve for losses and loss expenses and net reserve for unpaid losses and loss expenses for the periods indicated:




Six months ended June 30,	2013			2012

Gross reserve for losses and loss expenses, beginning of period	$	9,058,731		$	8,425,045
Less reinsurance recoverable on unpaid losses, beginning of period	(1,825,617		)	(1,736,823		)
Net reserve for unpaid losses and loss expenses, beginning of period	7,233,114			6,688,222

Net incurred losses and loss expenses related to:
Current year	1,177,926			1,098,168
Prior years	(96,613		)	(119,840		)
	1,081,313			978,328
Net paid losses and loss expenses related to:
Current year	(54,732		)	(90,041		)
Prior years	(732,135		)	(731,363		)
	(786,867		)	(821,404		)

Foreign exchange and other	(130,536		)	(10,129		)

Net reserve for unpaid losses and loss expenses, end of period	7,397,024			6,835,017
Reinsurance recoverable on unpaid losses, end of period	1,945,793			1,765,634
Gross reserve for losses and loss expenses, end of period	$	9,342,817		$	8,600,651

Prior year reserve development arises from changes to loss and loss expense estimates recognized in the current year but relating to losses incurred in previous calendar years. Such development is summarized by segment in the following table:



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012

Insurance	$	6,693	$	35,394	$	12,290	$	50,289
Reinsurance	35,422		39,218		84,323		69,551
Total	$	42,115	$	74,612	$	96,613	$	119,840

The majority of the net favorable prior year reserve development in each period related to short-tail lines of business. Net favorable prior year reserve development for liability reinsurance and professional lines reinsurance business also contributed in 2013 and 2012, respectively.

The underlying exposures in the property, marine and aviation reserving classes within our insurance segment and the property reserving class within our reinsurance segment largely relate to short-tail business. Development from these classes contributed $32 million and $68 million, respectively, of the total net favorable prior year reserve development in the second quarters of 2013 and 2012. For the six months ended June 30, 2013 and 2012, these short-tail lines contributed $62 million and $87 million, respectively, of net favorable prior year reserve development. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.

In the first quarter of 2013, we began to give weight to actuarial methods that reflect our actual experience for liability reinsurance business, as we believe that our older accident years are now at a stage of expected development where such methods will produce meaningful actuarial indications. As a result, during the first half of 2013, we recognized $38 million of net favorable prior year reserve development, primarily emanating from the 2004 through 2007 accident years.

Our professional lines reinsurance business contributed further net favorable prior year reserve development of $26 million in the six months ended June 30, 2012. This prior year reserve development was driven by increased weight being given to experience based actuarial methods in selecting our ultimate loss estimates for accident years 2009 and prior. As our loss experience has generally been better than expected, this resulted in the recognition of favorable development.

The frequency and severity of natural catastrophe and weather activity was high in recent years and our June 30, 2013 net reserve for losses and loss expenses continues to include estimated amounts for numerous events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Storm Sandy, the Japanese earthquake and tsunami, the three New Zealand earthquakes and the recent Canadian, European and Argentinian floods, inherently increases the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.