Reserve for Loss and Loss Adjustment Expenses

Our reserve for loss and LAE comprises:



	September 30, 2017		December 31, 2016
Reserve for reported loss and LAE	$	1,898,474	$	1,617,956
Reserve for losses incurred but not reported ("IBNR")	1,466,537		1,278,540
Reserve for loss and LAE	$	3,365,011	$	2,896,496

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



For the Nine Months Ended September 30,	2017			2016
Gross loss and LAE reserves, January 1	$	2,896,496		$	2,510,101
Less: reinsurance recoverable on unpaid losses, January 1	99,936			71,248
Net loss and LAE reserves, January 1	2,796,560			2,438,853
Net incurred losses related to:
Current year	1,394,623			1,255,493
Prior years	150,534			41,868
	1,545,157			1,297,361
Net paid losses related to:
Current year	(400,908		)	(356,135		)
Prior years	(765,049		)	(722,395		)
	(1,165,957		)	(1,078,530		)
Effect of foreign exchange movements	48,622			4,764
Net loss and LAE reserves, September 30	3,224,382			2,662,448
Reinsurance recoverable on unpaid losses, September 30	140,629			97,070
Gross loss and LAE reserves, September 30	$	3,365,011		$	2,759,518

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 loss 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 the three and nine months ended September 30, 2017, the Company recognized approximately $77,670 and $150,534, respectively (2016 - $12,446 and $41,868, respectively) of adverse development in both the Diversified Reinsurance and AmTrust Reinsurance segments as well as in its run-off business.

For the Diversified Reinsurance segment, adverse development was $7,878 and $39,486 for the three and nine months ended September 30, 2017, respectively (2016 - $10,408 and $37,404, respectively) which was largely due to a higher than expected loss emergence emanating largely from facultative commercial auto as well as a handful of specific contracts across several lines of business.

For the AmTrust Reinsurance segment, the net adverse development was $61,127 and $100,872 for the three and nine months ended September 30, 2017, respectively, largely from program and non-program general liability, auto liability and workers compensation lines where elevated loss activity has been observed, $16,237 of which, came from one program that was terminated on September 1, 2017 (2016 - $1,993 and $1,524, respectively).

Our Other category also incurred adverse development of $8,665 and $10,176 for the three and nine months ended September 30, 2017, respectively, (2016 - $45 and $2,940, respectively) due to increased reserves in the remaining run–off litigated U.S. E&S property claims and increased reserves in the run–off of the NGHC Quota Share Reinsurance Agreement.

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

For the three and nine months ended September 30, 2017, the Company recorded an estimate of $20,000 in losses from Hurricanes Harvey and Irma, predominantly in the Diversified segment largely from the property and casualty lines. The Company expects no impact from the Mexico earthquakes or Hurricane Maria.