Reserve for Loss and Loss Adjustment Expenses

Our reserve for loss and LAE comprises:



December 31,	2015		2014
Reserve for reported loss and LAE	$	1,411,712	$	1,241,132
Reserve for losses incurred but not reported	1,098,389		1,030,160
Reserve for loss and LAE	$	2,510,101	$	2,271,292

9. Reserve for Loss and Loss Adjustment Expenses (continued)

The following table represents a reconciliation of our beginning and ending gross and net loss and LAE reserves:



For the Year Ended December 31,	2015			2014			2013
Gross loss and LAE reserves, January 1	$	2,271,292		$	1,957,835		$	1,740,281
Less: reinsurance recoverable on unpaid losses, January 1	75,873			84,036			110,858
Net loss and LAE reserves, January 1	2,195,419			1,873,799			1,629,423
Net incurred losses related to:
Current year	1,558,704			1,479,425			1,351,043
Prior years	74,866			18,846			(1,413		)
	1,633,570			1,498,271			1,349,630
Net paid losses related to:
Current year	(457,517		)	(430,394		)	(517,606		)
Prior years	(892,840		)	(705,397		)	(598,490		)
	(1,350,357		)	(1,135,791		)	(1,116,096		)
Effect of foreign exchange movements	(39,779		)	(40,860		)	10,842
Net loss and LAE reserves, December 31	2,438,853			2,195,419			1,873,799
Reinsurance recoverable on unpaid losses, December 31	71,248			75,873			84,036
Gross loss and LAE reserves, December 31	$	2,510,101		$	2,271,292		$	1,957,835

Management believes that its use of both historical experience and industry-wide loss development factors provide a reasonable basis for estimating future losses. In the future, certain events may be beyond the control of management, such as changes in law, judicial interpretations of law, and inflation may favorably or unfavorably impact the ultimate settlement of the Company’s loss and LAE reserves.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated changes in claim costs due to inflation are considered in estimating the ultimate claim costs, changes in average severity of claims are caused by a number of factors that vary with the individual type of policy written. Ultimate losses are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual development and are modified if necessary. Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves in previous calendar years. The development reflects changes in management's best estimate of the ultimate losses under the relevant reinsurance policies after review of changes in actuarial assessments.

During 2015, the Company recorded estimated net adverse development, primarily from U.S. commercial auto business, on prior year loss reserves of $74,866 or 3.3% of prior year net loss and LAE reserves compared to net unfavorable development $18,846 or 1.0% in 2014 and net favorable development of $1,413 or 0.1% in 2013.