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:




Nine months ended September 30,	2014			2013

Gross reserve for losses and loss expenses, beginning of period	$	9,582,140		$	9,058,731
Less reinsurance recoverable on unpaid losses, beginning of period	(1,900,112		)	(1,825,617		)
Net reserve for unpaid losses and loss expenses, beginning of period	7,682,028			7,233,114

Net incurred losses and loss expenses related to:
Current year	1,855,482			1,759,483
Prior years	(193,385		)	(176,648		)
	1,662,097			1,582,835
Net paid losses and loss expenses related to:
Current year	(202,364		)	(168,564		)
Prior years	(1,165,215		)	(1,028,401		)
	(1,367,579		)	(1,196,965		)

Foreign exchange and other	(139,313		)	(17,265		)

Net reserve for unpaid losses and loss expenses, end of period	7,837,233			7,601,719
Reinsurance recoverable on unpaid losses, end of period	1,914,670			1,882,797
Gross reserve for losses and loss expenses, end of period	$	9,751,903		$	9,484,516

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 September 30,				Nine months ended September 30,
	2014		2013		2014		2013

Insurance	$	9,488	$	34,065	$	54,059	$	46,355
Reinsurance	55,050		45,970		139,326		130,293
Total	$	64,538	$	80,035	$	193,385	$	176,648

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 professional and liability reinsurance lines in the three and nine months ended September 30, 2014 and 2013 also contributed and was partially offset by unfavorable prior year reserve development in the liability insurance lines.

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 $61 million and $57 million of the total net favorable prior year reserve development for the three months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, these short-tail lines contributed $162 million and $119 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. Favorable development was recognized of $26 million in the three months ended September 30, 2013 and $12 million and $64 million in the nine months ended September 30, 2014 and 2013, respectively, primarily reflecting the greater weight management is giving to experience based indications and our experience which has been favorable for the 2005 through 2008 accident years.

Our medium-tail business consists primarily of professional insurance and reinsurance lines and credit and surety reinsurance business. Our professional lines reinsurance business contributed further net favorable prior year reserve development of $10 million in both the three months ended September 30, 2014 and 2013 and $22 million and $20 million in the nine months ended September 30, 2014 and 2013, respectively. 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 2010 and prior. As our loss experience has generally been better than expected, this resulted in the recognition of favorable development.

In the three months ended September 30, 2014 we recorded adverse prior year reserve development of $14 million in our insurance liability lines relating primarily to an increase in loss estimates for two specific claims. Our credit and surety line recorded an adverse development of $15 million in the three months ended September 30, 2013 primarily reflecting recent claim developments on certain European bond exposures.

The frequency and severity of natural catastrophe and weather activity was high in recent years and our September 30, 2014 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 2011 Japanese earthquake and tsunami and 2010 and 2011 New Zealand earthquakes, inherently increase 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.