6.	Liability for Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:


	Quarters Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2014		2013			2014			2013
Balance at beginning of period	$	754,595	$	844,918		$	779,466		$	879,114
Less: Ceded reinsurance receivables		178,998		229,815			192,491			240,546

Net balance at beginning of period		575,597		615,103			586,975			638,568
Incurred losses and loss adjustment expenses related to:
Current year		36,501		37,115			119,464			107,202
Prior years		153		(1,632	)		(5,969	)		(5,007	)

Total incurred losses and loss adjustment expenses		36,654		35,483			113,495			102,195

Paid losses and loss adjustment expenses related to:
Current year		15,480		15,090			39,472			34,354
Prior years		28,704		32,088			92,931			103,001

Total paid losses and loss adjustment expenses		44,184		47,178			132,403			137,355

Net balance at end of period		568,067		603,408			568,067			603,408
Plus: Ceded reinsurance receivables		171,864		219,655			171,864			219,655

Balance at end of period	$	739,931	$	823,063		$	739,931		$	823,063

When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.

In the third quarter of 2014, the Company increased its prior accident year loss reserves by $0.2 million, which consisted of a $0.02 million increase related to Insurance Operations and a $0.1 million increase related to Reinsurance Operations.

The $0.02 million increase related to Insurance Operations primarily consisted of the following:

•

General Liability: A $5.4 million increase primarily due to higher than anticipated loss emergence in recent accident years.

•

Professional: A $6.4 million reduction is primarily due to lower than expected severity from accident years 2007 through 2011.

•

Property: A $0.5 million increase primarily due to increased severity in accident years 2011 through 2013.

•

Asbestos: $0.2 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

•

Other: A $0.3 million increase primarily due to accident years 2011 through 2013.

The $0.1 million increase related to Reinsurance Operations primarily consisted of the following:

•

Property: A $3.4 million reduction is due to less catastrophe losses than anticipated primarily from accident year 2013.

•

Auto Liability: A $0.5 million increase due to increased severity primarily from accident years 2009 and 2010.

•

Marine: A $3.0 million increase is primarily related to increased severity on accident years 2011 and 2012. These treaties are in runoff. Several claims have recently settled for amounts higher than expected.

In the third quarter of 2013, the Company reduced its prior accident year loss reserves by $1.6 million, which consisted of a $1.8 million decrease related to Insurance Operations and a $0.2 million increase related to Reinsurance Operations.

The $1.8 million decrease related to Insurance Operations primarily consisted of the following:

•

Property: A $2.4 million reduction primarily driven by $2.5 million of better than expected development from accident years 2011 and 2012 related primarily to lower than expected non-catastrophe severity.

•

General Liability: A $2.4 million reduction primarily due to better than expected emergence from accident years 1996 to 2007 of $4.8 million offset by a $2.4 million increase which is primarily due to higher than anticipated loss emergence in accident year 2008 and 2012.

•

Asbestos and Environmental: A $1.8 million increase primarily related to policies written prior to 1990.

•

Professional: A $0.6 million increase primarily driven by unexpected loss emergence in accident years 2008, 2010, and 2011.

•

Umbrella: A $0.3 million increase primarily driven by loss emergence in accident years 2008 to 2012.

•

Commercial Auto: A $0.4 million increase related to accident years 2011 and 2012.

The $0.2 million increase related to Reinsurance Operations consisted of an increase in auto liability lines primarily related to accident years 2009 to 2012.

In the first nine months of 2014, the Company reduced its prior accident year loss reserves by $6.0 million, which consisted of a $5.0 million decrease related to Insurance Operations and a $1.0 million decrease related to Reinsurance Operations.

The $5.0 million decrease related to Insurance Operations primarily consisted of the following:

•

Property: A $0.7 million increase primarily due to increased severity in accident years 2007, 2012, and 2013.

•

General Liability: A $5.3 million increase primarily due to higher than anticipated loss emergence in recent accident years.

•

Professional: A $18.1 million reduction due to lower than expected severity primarily from accident years 2007 through 2011.

•

Asbestos: $7.1 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

The $1.0 million decrease related to Reinsurance Operations primarily consisted of the following:

•

Property: A $4.7 million reduction driven by less catastrophe losses than anticipated primarily from accident years 2012 and 2013.

•

Marine: A $3.0 million increase primarily related to increased severity from accident years 2011 and 2012. These treaties are in runoff. Several claims have recently settled for amounts higher than expected.

•

Commercial Auto: $0.7 million increase is primarily due to increased severity primarily from accident years 2009 and 2010.

In the first nine months of 2013, the Company reduced its prior accident year loss reserves by $5.0 million, which consisted of a $5.0 million decrease related to Insurance Operations and a less than $0.1 million increase related to Reinsurance Operations.

The $5.0 million decrease related to Insurance Operations primarily consisted of the following:

•

Property: A $7.4 million reduction primarily driven by better than expected development from accident year 2012 catastrophes as well as lower than expected non-catastrophe severity from accident years 2008 through 2012.

•

General Liability: A $6.3 million reduction primarily due to better than expected emergence in nearly all accident years between 1995 through 2011 offset by an increase to accident year 2012 due to higher than anticipated loss emergence.

•

Asbestos and Environmental: A $7.3 million increase primarily related to policies written prior to 1990.

•

Umbrella: A $0.5 million increase primarily driven by loss emergence in accident years 2008 to 2012.

•

Commercial Auto: A $0.5 million increase primarily related to accident year 2011.

•

Marine: A $0.3 million increase primarily related to accident year 2011 due to greater than expected loss emergence on hull claims and protection and indemnity claims.