The Company uses both historical experience and industry-wide loss development factors to 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, which 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.

The reserving process begins with the collection and analysis of paid losses and incurred claims data for each of our contracts. While reserves are reviewed on a contract by contract basis, paid losses and incurred claims data is also aggregated into reserving segments. The segmental data is disaggregated by reserving class and further disaggregated by either accident year (i.e. the year in which the loss event occurred) or by underwriting year (i.e. the year in which the contract generating the premium and losses incepted). The Company in some cases uses underwriting year information to analyze our Diversified Reinsurance segment and subsequently allocate reserves to the respective accident years. Our reserve for loss and LAE comprises:



	June 30, 2019		December 31, 2018
Reserve for reported loss and LAE	$	1,533,380	$	1,571,217
Reserve for losses incurred but not reported ("IBNR")	1,517,885		1,484,759
Reserve for loss and LAE	$	3,051,265	$	3,055,976



For the Six Months Ended June 30,	2019			2018
Gross loss and LAE reserves, January 1	$	3,055,976		$	2,386,722
Less: reinsurance recoverable on unpaid losses, January 1	1,743			24,883
Net loss and LAE reserves, January 1	3,054,233			2,361,839
Net incurred losses related to:
Current year	240,978			685,229
Prior years	33,272			37,978
	274,250			723,207
Net paid losses related to:
Current year	(3,186		)	(151,527		)
Prior years	(272,136		)	(401,039		)
	(275,322		)	(552,566		)
Effect of foreign exchange rate movements	(3,880		)	(12,308		)
Net loss and LAE reserves, June 30	3,049,281			2,520,172
Reinsurance recoverable on unpaid losses, June 30	1,984			21,803
Gross loss and LAE reserves, June 30	$	3,051,265		$	2,541,975

Commencing in 2015, Maiden Bermuda entered into a number of retrocessional quota share agreements with a highly rated global insurer to cede certain lines of business from both of our reportable segments. Effective July 1, 2018, Maiden Bermuda commuted all of these retrocessional quota share agreements.

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 six months ended June 30, 2019, the Company recognized net adverse prior year loss development of $26,014 and $33,272, respectively (2018 - adverse $28,193 and $37,978, respectively).

In the Diversified Reinsurance segment, the net favorable prior year loss development was $1,052 and $2,148 for the three and six months ended June 30, 2019, respectively (2018 - $181 favorable and $1,085 adverse, respectively) primarily due to favorable prior year reserve development in German Auto programs as well as facultative reinsurance run-off lines.

In the AmTrust Reinsurance segment, the net adverse prior year loss development was $27,090 and $35,216 for the three and six months ended June 30, 2019, respectively (2018 - $28,374 and $36,893, respectively). The adverse development in the three and six months ended June 30, 2019 was primarily due to Commercial Auto Liability in accident years 2015 to 2018, partly offset by favorable development in Workers Compensation. The adverse development for the second quarter of 2018 primarily came from Workers Compensation and General Liability while the adverse development for the six months ended June 30, 2018 was a combination of the second quarter development and adverse development from the first quarter of 2018 largely from General Liability, with a smaller contribution from Commercial Auto liability primarily driven by accident years 2015 and 2016.

The Other category had net favorable prior year loss development of $24 and adverse development of $204 for the three and six months ended June 30, 2019, respectively, (2018 - $0) due to increased reserves in the run-off of the NGHC Quota Share.