Our reserve for losses and loss expenses comprise the following:




As of December 31,	2014		2013

Reserve for reported losses and loss expenses	$	3,285,675	$	3,499,817
Reserve for losses incurred but not reported	6,311,122		6,082,323
Reserve for losses and loss expenses	$	9,596,797	$	9,582,140

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 years indicated:




Year ended December 31,	2014			2013			2012

Gross reserve for losses and loss expenses, beginning of year	$	9,582,140		$	9,058,731		$	8,425,045
Less reinsurance recoverable on unpaid losses, beginning of year	(1,900,112		)	(1,825,617		)	(1,736,823		)
Net reserve for unpaid losses and loss expenses, beginning of year	7,682,028			7,233,114			6,688,222

Net incurred losses and loss expenses related to:
Current year	2,445,666			2,353,631			2,340,868
Prior years	(258,944		)	(219,436		)	(244,840		)
	2,186,722			2,134,195			2,096,028
Net paid losses and loss expenses related to:
Current year	(387,197		)	(318,006		)	(322,836		)
Prior years	(1,544,664		)	(1,373,459		)	(1,299,384		)
	(1,931,861		)	(1,691,465		)	(1,622,220		)

Foreign exchange and other	(230,372		)	6,184			71,084

Net reserve for unpaid losses and loss expenses, end of year	7,706,517			7,682,028			7,233,114
Reinsurance recoverable on unpaid losses, end of year	1,890,280			1,900,112			1,825,617
Gross reserve for losses and loss expenses, end of year	$	9,596,797		$	9,582,140		$	9,058,731

We write business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in our financial results. During 2014, 2013 and 2012, respectively, we recognized aggregate net losses and loss expenses of $93 million, $201 million and $438 million in relation to natural catastrophe and weather-related events.

Prior year reserve development arises from changes to loss and loss expense estimates related to loss events that occurred in previous calendar years. Such development is summarized by segment in the following table:




	Insurance		Reinsurance		Total

Year ended December 31, 2014	$	63,735	$	195,209	$	258,944
Year ended December 31, 2013	50,355		169,081		219,436
Year ended December 31, 2012	122,209		122,631		244,840

Overall, the majority of the net favorable prior year reserve development in 2014 related to short-tail lines of business. Net favorable prior year reserve development for reinsurance professional, liability and motor lines also contributed significantly and was partially offset by adverse development in insurance liability lines. Favorable reserve development in reinsurance liability and professional lines contributed in 2013 and was partially offset by adverse development in the insurance professional and insurance liability lines. Favorable development in professional lines contributed notably in 2012.

The underlying exposures in our 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 $207 million, $162 million and $186 million of the total net favorable prior year reserve development in 2014, 2013 and 2012, respectively, and primarily reflected the recognition of better than expected loss emergence.

Our professional lines business recognized $32 million and $54 million of favorable prior year development in 2014 and 2012, respectively, while 2013 recognized $29 million of net adverse development. The 2014 and 2012 favorable prior year reserve developments were 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. The increase in the reserves in 2013 was due to a $51 million adverse development in the insurance segment, reflecting worse than expected loss experience for the 2011-2012 accident years, following worse than expected loss experience on certain parts of our U.S. D&O business, and the 2008-2009 accident years, due to developments on certain global financial crisis-related claims. During 2013, the transition to the experience-based actuarial methods had a favorable impact on 2010 and prior years, which partially offset the adverse development discussed above.

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. During 2014 and 2013, we recognized $21 million and $85 million, respectively, of net favorable prior year development, primarily reflecting the greater weight management is giving to experience based indications and our experience which has been favorable for the 2004 through 2008 accident years. This favorable development was offset in 2014 and partially offset in 2013 by adverse development in our liability insurance business of $23 million and $24 million, respectively, relating primarily to an increase in loss estimates for certain specific claim reserves.

Our motor lines recorded favorable prior year development of $19 million during 2014, relating to better than expected loss emergence on certain European exposures.

The frequency and severity of natural catastrophe and weather-related activity was high for 2012 and prior periods and our December 31, 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 Japanese earthquake and tsunami and the three 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.