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RESERVE FOR LOSSES AND LOSS EXPENSES | 6 Months Ended
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Jun. 30, 2017
Insurance Loss Reserves [Abstract] |
RESERVE FOR LOSSES AND LOSS EXPENSES | Reserve Roll-Forward 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, | 2017 |  | 2016 |
| Gross reserve for losses and loss expenses, beginning of period | $ | 9,697,827 |  |  | $ | 9,646,285 |  |
| Less reinsurance recoverable on unpaid losses, beginning of period | (2,276,109 | ) |  | (2,031,309 | ) |
| Net reserve for unpaid losses and loss expenses, beginning of period | 7,421,718 |  |  | 7,614,976 |  |
| Net incurred losses and loss expenses related to: |  |  |  |
| Current year | 1,308,000 |  |  | 1,279,369 |  |
| Prior years | (95,727 | ) |  | (148,113 | ) |
|  | 1,212,273 |  |  | 1,131,256 |  |
| Net paid losses and loss expenses related to: |  |  |  |
| Current year | (140,018 | ) |  | (112,730 | ) |
| Prior years | (969,153 | ) |  | (966,589 | ) |
|  | (1,109,171 | ) |  | (1,079,319 | ) |
| Foreign exchange and other | 242,973 |  |  | (106,629 | ) |
| Net reserve for unpaid losses and loss expenses, end of period | 7,767,793 |  |  | 7,560,284 |  |
| Reinsurance recoverable on unpaid losses, end of period | 2,110,869 |  |  | 2,222,020 |  |
| Gross reserve for losses and loss expenses, end of period | $ | 9,878,662 |  |  | $ | 9,782,304 |  |
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 the six months ended June 30, 2017 and 2016, we recognized aggregate net losses and loss expenses, net of reinstatement premiums of $85 million and $124 million, respectively, in relation to catastrophe and weather related events. The transfer of the insurance business of AXIS Specialty Australia to a reinsurer was approved by the Irish High Court on February 1, 2017 and the Federal Court of Australia on February 10, 2017. Consequently, the insurance policies, assets and liabilities of AXIS Specialty Australia were transferred to the reinsurer with effect from February 13, 2017. This resulted in the reduction of reserves for losses and loss expenses by $223 million and a reduction in reinsurance recoverables on unpaid and paid losses by $223 million. On April 1, 2017, the Company acquired a 100% ownership interest in Aviabel. Foreign exchange and other includes reserves for losses and loss expenses of $79 million and reinsurance recoverables on unpaid and paid losses of $5 million related to this acquisition. Prior Year Development Prior year reserve development arises from changes to loss and loss expense estimates related 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, |
|  | 2017 |  | 2016 |  | 2017 |  | 2016 |
| Insurance | $ | 19,517 |  |  | $ | 20,066 |  |  | $ | 28,137 |  |  | $ | 22,493 |  |
| Reinsurance | 51,416 |  |  | 57,653 |  |  | 67,590 |  |  | 125,620 |  |
| Total | $ | 70,933 |  |  | $ | 77,719 |  |  | $ | 95,727 |  |  | $ | 148,113 |  |
Net favorable prior year reserve development for the three and six months ended June 30, 2017, respectively included significant contributions from our short-tail reserve classes, with additional net favorable prior year reserve development being contributed by our professional insurance and reinsurance reserve classes, as well as our liability reinsurance reserve class, partially offset by net adverse prior year development in our motor reserve class, and our liability insurance reserve class.The majority of net favorable reserve development for the three and six months ended June 30, 2016, respectively, related to short-tail reserve classes, with additional net favorable prior year reserve development being contributed by our motor reserve class, our liability reinsurance reserve class, and our professional insurance and reinsurance reserve classes. Our short tail business includes the underlying exposures in our property and other, marine and aviation reserve classes within our insurance segment, and the property and other reserve class within our reinsurance segment. Development from these classes contributed $31 million and $35 million of net favorable prior year reserve development for the three and six months ended June 30, 2017, respectively. These short-tail lines contributed $27 million and $75 million of net favorable prior year reserve development for the three and six months ended June 30, 2016, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence. Our medium-tail business consists primarily of professional insurance and reinsurance reserve classes, credit and political risk insurance reserve class, and credit and surety reinsurance reserve class. For the three and six months ended June 30, 2017, the professional reserve classes contributed net favorable prior year reserve development of $22 million and $46 million, respectively. For the three and six months ended June 30, 2016, the professional reserve classes contributed net favorable prior year reserve development of $15 million and $16 million, respectively. The net favorable prior year reserve development on these reserve classes reflected generally favorable experience as we continued to transition to more experience based methods. Our long-tail business consists primarily of liability and motor reserve classes. For the three and six months ended June 30, 2017, the liability reinsurance reserve class contributed net favorable prior year reserve development of $16 million and $39 million, respectively. For the three and six months ended and June 30, 2016, the liability reinsurance reserve class contributed net favorable prior year development of $15 million and $22 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. For the six months ended June 30, 2017, the liability insurance reserve class recorded net adverse prior year reserve development of $7 million, primarily attributable to reserve strengthening within our run-off Bermuda excess casualty book of business. For the six months ended June 30, 2017, the motor reinsurance reserve class recorded net adverse prior year reserve development of $20 million. This adverse development was driven by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. For the three and six months ended June 30, 2016, the motor reinsurance reserve class contributed $17 million and $33 million, respectively, of net favorable prior year reserve development related to favorable loss emergence trends on several classes of business spanning multiple accident years. Our June 30, 2017 net reserves for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion, 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.

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