7. 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 June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Balance at beginning of period	$	770,119		$	779,047		$	675,472		$	779,466
Less: Ceded reinsurance receivables		140,508			195,533			123,201			192,491

Net balance at beginning of period		629,611			583,514			552,271			586,975
Purchased reserves, gross		(584	)		—			88,370			—
Less: Purchased reserves ceded		—			—			11,681			—

Purchased reserves, net		(584	)		—			76,689			—

Incurred losses and loss adjustment expenses related to:
Current year		84,724			42,298			157,838			82,964
Prior years		(5,164	)		(4,028	)		(8,659	)		(6,122	)

Total incurred losses and loss adjustment expenses		79,560			38,270			149,179			76,842

Paid losses and loss adjustment expenses related to:
Current year		45,379			15,785			60,061			23,997
Prior years		32,406			30,402			87,276			64,223

Total paid losses and loss adjustment expenses		77,785			46,187			147,337			88,220

Net balance at end of period		630,802			575,597			630,802			575,597
Plus: Ceded reinsurance receivables		138,497			178,998			138,497			178,998

Balance at end of period	$	769,299		$	754,595		$	769,299		$	754,595

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 second quarter of 2015, the Company decreased its prior accident year loss reserves by $5.2 million, which consisted of a $3.6 million decrease related to Commercial Lines and a $1.6 million decrease related to Reinsurance Operations.

The $3.6 million decrease related to Commercial Lines primarily consisted of the following:

•

Professional: $2.9 million decrease primarily due to frequency emergence continuing to be better than anticipated in accident years 2006 through 2011.

•

General Liability: A $1.1 million decrease primarily related to accident years 2011 and 2012 due to less than anticipated frequency and severity.

The $1.6 million decrease related to Reinsurance Operations was primarily due to less severity on property than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

In the second quarter of 2014, the Company reduced its prior accident year loss reserves by $4.0 million, which consisted of a $3.0 million decrease related to Commercial Lines and a $1.0 million decrease related to Reinsurance Operations.

The $3.0 million decrease related to Commercial Lines primarily consisted of the following:

•

General liability: A $0.8 million net increase which consisted of a $6.0 million reduction in the ongoing General Liability book due to less frequency and severity than anticipated and a $6.8 million increase to the Company’s older environmentally exposed book.

•

Asbestos: A $6.9 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

•

Professional: A $10.0 million reduction primarily driven by a lower than expected severity from accident years 2007 through 2010.

•

Other: A $0.7 million decrease primarily related to the auto physical damage and marine lines of business.

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

•

Property: A $1.3 million decrease primarily related to accident year 2012 due to catastrophe losses developing better than expected.

•

Commercial Auto Liability: A $0.3 million increase in aggregate related to accident years 2009 to 2011.

In the first six months of 2015, the Company decreased its prior accident year loss reserves by $8.7 million, which consisted of a $5.6 million decrease related to Commercial Lines and a $3.1 million decrease related to Reinsurance Operations.

The $5.6 million decrease related to Commercial Lines primarily consisted of the following:

•

Property: A $0.8 million decrease primarily related to accident years 2009 through 2013 due to less than anticipated frequency and severity.

•

Umbrella: $0.3 million decrease primarily due to emergence continuing to be better than anticipated in accident years 2003 through 2005.

•

Professional: $2.9 million decrease primarily due to frequency emergence continuing to be better than anticipated in accident years 2006 through 2011.

•

General Liability: A $1.8 million decrease primarily related to accident years 2011 and 2012 due to less than anticipated frequency and severity.

The $3.1 million decrease related to Reinsurance Operations was primarily due to less severity on property than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

In the first six months of 2014, the Company reduced its prior accident year loss reserves by $6.1 million, which consisted of a $5.0 million decrease related to Commercial Lines and a $1.1 million decrease related to Reinsurance Operations.

The $5.0 million decrease related to Commercial Lines primarily consisted of the following:

•

Asbestos: A $6.9 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

•

Professional: An $11.8 million reduction primarily driven by a lower than expected severity from accident years 2007 through 2010.

The $1.1 million decrease related to Reinsurance Operations primarily consisted of the following:

•

Property: A $1.3 million decrease primary due to less severity than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

•

Commercial Auto Liability: A $0.2 million increase in aggregate related to accident years 2009 to 2011.