Reserve Roll-Forward

The following table presents a reconciliation of the Company's 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,
	2018			2017

Gross reserve for losses and loss expenses, beginning of period	$	12,997,553		$	9,697,827
Less reinsurance recoverable on unpaid losses, beginning of period	(3,159,514		)	(2,276,109		)
Net reserve for unpaid losses and loss expenses, beginning of period	9,838,039			7,421,718

Net incurred losses and loss expenses related to:
Current year	2,323,028			2,591,135
Prior years	(160,083		)	(143,495		)
	2,162,945			2,447,640
Net paid losses and loss expenses related to:
Current year	(381,158		)	(328,751		)
Prior years	(1,770,667		)	(1,384,510		)
	(2,151,825		)	(1,713,261		)

Foreign exchange and other	(1,040,999		)	333,456

Net reserve for unpaid losses and loss expenses, end of period	8,808,160			8,489,553
Reinsurance recoverable on unpaid losses, end of period	3,217,787			2,298,022
Gross reserve for losses and loss expenses, end of period	$	12,025,947		$	10,787,575

The Company writes business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in its financial results. During the nine months ended September 30, 2018, the Company recognized net losses and loss expenses of $162 million (2017: $702 million, net of reinstatement premiums) attributable to catastrophe and weather-related events.

On April 16, 2018, the Company entered into a quota share retrocessional agreement with Harrington Re, a related party, which was deemed to have met the established criteria for retroactive reinsurance accounting. The Company recognized reinsurance recoverable on unpaid losses of $108 million related to this reinsurance agreement. This transaction was conducted at market rates consistent with negotiated arms-length contracts.

On January 1, 2018, AXIS Managing Agency Limited, the managing agent of Syndicate 2007 entered into an agreement for the RITC of the 2015 and prior years of account of Syndicate 2007. This agreement was accounted for as a novation reinsurance contract. At September 30, 2018, foreign exchange and other included a reduction in reserves for losses and loss expenses of $819 million related to this transaction.

On April 1, 2017, the Company acquired a 100% ownership interest in Aviabel. At September 30, 2017, foreign exchange and other included reserves for losses and loss expenses of $79 million and reinsurance recoverables on unpaid and paid losses of $5 million related to this acquisition.

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.

Prior Year Development

Prior year reserve development arises from changes to loss and loss expense estimates related to loss events that occurred in previous calendar years. The following table presents prior year reserve development by segment:



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017

Insurance	$	13,478	$	7,926	$	60,547	$	35,579
Reinsurance	32,182		39,842		99,536		107,916
Total	$	45,660	$	47,768	$	160,083	$	143,495

The following tables reconcile reserve classes to the lines of business categories and the expected claim tails:



Insurance Segment
		Reported Lines of Business

Reserve Classes	Tail	Property	Marine	Terrorism	Aviation	Credit and Political Risk	Professional Lines	Liability	Accident and Health	Discontinued lines - Novae

Property and Other	Short	X		X					X	X
Marine	Short		X
Aviation	Short				X
Credit and Political Risk	Medium					X
Professional Lines	Medium						X			X
Liability	Long							X		X

Reinsurance Segment

Reported Lines of Business

Reserve Classes

Tail

Catastrophe

Property

Credit and Surety

Professional Lines

Motor

Liability

Engineering

Agriculture

Marine and Other

Accident and Health

Discontinued lines - Novae

Property and Other

Short

Credit and Surety

Medium

Professional Lines

Medium

Motor

Long

Liability

Long

Short-tail business

Short-tail business includes the underlying exposures in property and other, marine and aviation reserve classes within the insurance segment, and the property and other reserve class within the reinsurance segment.

For the three and nine months ended September 30, 2018, these reserve classes contributed net favorable prior year reserve development of $12 million and $92 million, respectively, reflecting the recognition of overall better than expected loss emergence related to the 2017 catastrophe events. For the three and nine months ended September 30, 2017, these reserve classes contributed net favorable prior year reserve development of $5 million and $41 million, respectively, reflecting the recognition of better than expected loss emergence.

Medium-tail business

Medium-tail business consists primarily of insurance and reinsurance professional reserve classes, insurance credit and political risk reserve class and reinsurance credit and surety reserve class.

For the three and nine months ended September 30, 2018, the reinsurance professional reserve class recognized net favorable prior year reserve development of $10 million (2017: $9 million) and $18 million (2017: $36 million), respectively. For the three and nine months ended September 30, 2018, the insurance professional reserve class recognized net favorable prior year development of $10 million and $12 million (2017: $18 million), respectively. The net favorable prior year reserve development on these reserve classes continued to reflect generally favorable experience as the Company continued to transition to more experienced based methods.

For the three and nine months ended September 30, 2018, the credit and surety reinsurance reserve class recorded net favorable prior year reserve development of $6 million (2017: $17 million) and $21 million (2017: $18 million), respectively. This net favorable prior year reserve development reflected the recognition of better than expected loss emergence.

Long-tail business

Long-tail business consists primarily of insurance and reinsurance liability reserve classes and reinsurance motor reserve classes.

For the three and nine months ended September 30, 2018, the reinsurance liability reserve class contributed net favorable prior year reserve development of $11 million and $19 million (2017: $40 million), respectively. For the three months ended September 30, 2018, the net favorable prior year reserve development was largely associated with multi-line contracts and due to overall better than expected loss emergence related to the 2017 catastrophe events. For the nine months ended September 30, 2018, the net favorable prior year reserve development was largely associated with multi-line contracts and due to overall better than expected loss emergence related to the 2017 catastrophe events, together with generally favorable experience reflecting the progressively increased weight given by management to experience based indications on older accident years. For the nine months ended September 30, 2017, the net favorable prior year reserve development was primarily due to the progressively increased weight given by management to experience based indications on older accident years, which have generally been favorable.

For the three and nine months ended September 30, 2018, the insurance liability reserve class recorded net adverse prior year development of $11 million and $18 million, respectively, primarily related to reserve strengthening within the Company's U.S. excess casualty book of business. For the nine months ended September 30, 2017, the insurance liability reserve class recorded net adverse prior year development of $6 million primarily attributable to reserve strengthening within the Company's run-off Bermuda excess casualty book of business.

For the three and nine months ended September 30, 2018, the motor reinsurance reserve class contributed net favorable prior year reserve development of $7 million and $15 million, respectively, primarily attributable to non proportional treaty business on older accident years. For the three and nine months ended September 30, 2017, the motor reinsurance reserve class recorded net favorable prior year development of $16 million and net adverse prior year reserve development of $4 million, respectively. For the three months ended September 30, 2017, the net favorable prior year reserve development related to favorable loss emergence trends on several classes of business spanning multiple accident years. For the nine months ended September 30, 2017, the adverse prior year development was mainly driven by the decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden Rate which changed from plus 2.5% to minus 0.75% effective March 20, 2017.

At September 30, 2018, net reserves for losses and loss expenses included estimated amounts for numerous catastrophe events. The magnitude and/or complexity of losses arising from these events, in particular Hurricane Florence as well as Hurricanes Harvey, Irma and Maria, the two earthquakes in Mexico and the wildfires in Northern and Southern California which occurred in 2017, inherently increase the level of uncertainty and, therefore, the level of management judgment involved in arriving at the estimated net reserves for losses and loss expenses. As a result, actual losses for these events may ultimately differ materially from our current estimates.