Underwriting Operations.

The following five year table presents the distribution of the Company's gross written premiums by its segments:  U.S. Reinsurance, International, Bermuda, Insurance and Mt. Logan Re.  The premiums for each segment are further split between property and casualty business and, for reinsurance business, between pro rata or excess of loss business:

 

 

U.S. Reinsurance Segment.   The Company's U.S. Reinsurance segment writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S.  The marine and aviation business is written primarily through brokers and contains a significant international component. Surety business consists mainly of reinsurance of contract surety bonds.  The Company targets certain brokers and, through the broker market, specialty companies and small to medium sized standard lines companies.  The Company also targets companies that place their business

predominantly in the direct market, including small to medium sized regional ceding companies, and seeks to develop long-term relationships with those companies.  In addition, the U.S. Reinsurance segment writes portions of reinsurance programs for large, national insurance companies.

In 2015, $1,255.8 million of gross written premiums were attributable to U.S. treaty property business, of which 60.4% was written on an excess of loss basis and 39.6% was written on a pro rata basis.  The Company's property underwriters utilize sophisticated underwriting methods to analyze and price property business. The Company manages its exposures to catastrophe and other large losses by limiting exposures on individual contracts and limiting aggregate exposures to catastrophes in any particular zone and across contiguous zones.

U.S. treaty casualty business accounted for $400.3 million of gross written premiums in 2015, of which 73.7% was written on a pro rata basis and 26.3% was written on an excess of loss basis.  The treaty casualty business consists of professional liability, D&O liability, workers' compensation, excess and surplus lines and other liability coverages.  As a result of the complex technical nature of most of these risks, the Company's casualty underwriters tend to specialize by line of business and work closely with the Company's pricing actuaries.

The Company's facultative unit conducts business both through brokers and directly with ceding companies, and consists of three underwriting units representing property, casualty, and national brokerage lines of business.  Business is written from a facultative headquarters office in New York and satellite offices in Chicago and Oakland.  In 2015, $63.3 million, $38.0 million and $14.4 million of gross written premiums were attributable to the casualty, property and national brokerage lines of business, respectively.

The marine and aviation unit's 2015 gross written premiums totaled $110.1 million, all of which was written on a treaty basis and sourced through reinsurance brokers.  Of the marine and aviation gross written premiums in 2015, marine treaties represented 74.9% and consisted mainly of hull and cargo coverage.  In 2015, the marine unit's premiums were written 46.2% on a pro rata basis and 53.8% on an excess of loss basis.  Of the marine and aviation gross written premiums in 2015, aviation premiums accounted for 25.1% and included reinsurance of airline and general aviation risks.  In 2015, the aviation unit's premiums were written 90.2% on a pro rata basis and 9.8% on an excess of loss basis.

In 2015, gross written premiums of the surety unit totaled $41.0 million, 81.2% of which was written on a pro rata basis.  Most of the portfolio is reinsurance of contract surety bonds written directly with ceding companies, with the remainder being trade credit reinsurance, mostly in international markets.

In 2015, gross written premium of the A&H reinsurance unit totaled $40.6 million, of which 93.9% was written through brokers.

In 2015, 93.1% and 6.9% of the U.S. Reinsurance segment's gross written premiums were written in the broker reinsurance and direct reinsurance markets, respectively.

International Segment.   The Company's International segment focuses on opportunities in the international reinsurance markets.  The Company targets several international markets, including: Canada, with a branch in Toronto; Asia, with a branch in Singapore; and Latin America, Brazil, Africa and the Middle East, which business is serviced from Everest Re's Miami and New Jersey offices.  The Company also writes from New Jersey "home-foreign" business, which provides reinsurance on the international portfolios of U.S. insurers.  Of the Company's 2015 international gross written premiums, 82.7% represented property business, while 17.3% represented casualty business.  As with its U.S. operations, the Company's International segment focuses on financially sound companies that have strong management and underwriting discipline and expertise.  Of the Company's international business, 62.6% was written through brokers, with 37.4% written directly with ceding companies.

Gross written premiums of the Company's Canadian branch totaled $107.7 million in 2015 and consisted of 46.5% of excess property business, 34.8% of excess casualty business, 11.1% of pro rata casualty business and 7.6% of pro rata property business.  Of the Canadian gross written premiums, 80.2% consisted of treaty reinsurance, while 19.8% was facultative reinsurance.

The Company's Singapore branch covers the Asian markets and accounted for $180.0 million of gross written premiums in 2015 and consisted of 49.6% of excess property business, 47.2% of pro rata property business, 1.9% of excess casualty business and 1.3% of pro rata casualty business

International business written out of Everest Re's Miami and New Jersey offices accounted for $1,006.3 million of gross written premiums in 2015 and consisted of 60.2% of pro rata treaty property business, 19.2% of excess treaty property business, 9.9% of pro rata treaty casualty business, 3.2% of excess treaty casualty business and 7.5% of facultative property and casualty business.  Of this international business, 65.0% was sourced from Latin America, 14.0% was sourced from the Middle East, 12.7% was home-foreign business and 8.3% was sourced from Africa.

Bermuda Segment.   The Company's Bermuda segment writes property and casualty reinsurance through Bermuda Re and property and casualty reinsurance through its UK branch as well as through Ireland Re.  In 2015, Bermuda Re had gross written premiums of $393.5 million, virtually all of which was treaty reinsurance.

In 2015, the UK branch of Bermuda Re wrote $272.5 million of gross treaty reinsurance premium consisting of 35.1% of excess casualty business, 24.1% of pro rata casualty business, 21.7% of pro rata property business and 19.1% of excess property business.

In 2015, Ireland Re wrote $186.5 million of gross treaty reinsurance premium consisting of 54.3% of pro rata casualty business, 25.3% of pro rata property business, 15.4% of excess property business, and 5.0% of excess casualty business.

Insurance Segment. The Insurance segment writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada.  In 2015, the Company's Insurance segment wrote $1,532.3 million of gross written premiums, of which 61.4% was casualty and 38.6% was property, principally targeting commercial property and casualty business.  Business written through general agents with program administrators represented 38.2% of the premium with the remainder written directly through the Company's offices. Workers' compensation business accounted for $413.2 million, or 27.0% of the total business written, which included $334.3 million, or 80.9%, of workers' compensation business written in California.  In addition, crop insurance business written was $248.9 million; other short-tail/package business written was $219.9 million; professional liability business written was $198.5 million,; other liability business written was $159.0 million; Non-Crop Property business was $117.9 million, A&H insurance business written was $116.4 million; and $58.5 million is business written through our Canadian offices. With respect to insurance written through general agents and surplus lines brokers, the Company supplements the initial underwriting process with periodic claims, underwriting and operational reviews and ongoing monitoring.

Mt. Logan Re Segment.   The Mt. Logan Re segment represents business written for the segregated accounts of Mt. Logan Re. The Mt. Logan Re business represents a diversified set of catastrophe exposures, diversified by risk/peril and across different geographical regions globally.  Mt. Logan Re's business is sourced through operating subsidiaries of the Company; however, the activity is only reflected in the Mt. Logan Re segment.  For other inter-affiliate reinsurance, business is generally reported within the segment in which the business was first produced, consistent with how the business is managed. Gross written premium for 2015 was $234.0 million.

Geographic Areas.   The Company conducts its business in Bermuda, the U.S. and a number of foreign countries.  For select financial information about geographic areas, see ITEM 8, "Financial Statements and Supplementary Data" -  Note 19 of Notes to the Consolidated Financial Statements.  Risks attendant to the foreign operations of the Company parallel those attendant to the U.S. operations of the Company, with the primary exception of foreign exchange risks.  For more information about the risks, see ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Safe Harbor Disclosure".

Underwriting.

One of the Company's strategies is to "lead" as many of the reinsurance treaties it underwrites as possible.  The Company leads on approximately two-thirds of its treaty reinsurance business as measured by premium.  The lead reinsurer on a treaty generally accepts one of the largest percentage shares of the treaty and is in the strongest position to negotiate price, terms and conditions.  Management believes this strategy enables it to obtain more favorable terms and conditions on the treaties on which it participates.  When the Company does not lead the treaty, it may still suggest changes to any aspect of the treaty.  The Company may decline to participate on a treaty based upon its assessment of all relevant factors.

The Company's treaty underwriting process involves a team approach among the Company's underwriters, actuaries and claim staff.  Treaties are reviewed for compliance with the Company's general underwriting standards and most larger treaties are subjected to detailed actuarial analysis.  The actuarial models used in such analyses are tailored in each case to the subject exposures and loss experience.  The Company does not separately evaluate each of the individual risks assumed under its treaties.  The Company does, however, evaluate the underwriting guidelines of its ceding companies to determine their adequacy prior to entering into a treaty.  The Company may also conduct underwriting, operational and claim audits at the offices of ceding companies to monitor adherence to underwriting guidelines.  Underwriting audits focus on the quality of the underwriting staff, pricing and risk selection and rate monitoring over time.  Claim audits may be performed in order to evaluate the client's claims handling abilities and practices.

The Company's facultative underwriters operate within guidelines specifying acceptable types of risks, limits and maximum risk exposures.  Specified classes of large premium U.S. risks are referred to Everest Re's New York facultative headquarters for specific review before premium quotations are given to clients.  In addition, the Company's guidelines require certain types of risks to be submitted for review because of their aggregate limits, complexity or volatility, regardless of premium amount on the underlying contract.  Non-U.S. risks exhibiting similar characteristics are reviewed by senior managers within the involved operations.

In addition to its own underwriting staff, the Company's insurance operations write casualty coverages for homogeneous risks through select program managers.  These programs are evaluated based upon actuarial analysis and the program manager's capabilities.  The Company's rates, forms and underwriting guidelines are tailored to specific risk types.  The Company's underwriting, actuarial, claim and financial functions work closely with its program managers to establish appropriate underwriting and processing guidelines as well as appropriate performance monitoring mechanisms.

Risk Management of Underwriting and Retrocession Arrangements

Underwriting Risk and Accumulation Controls.   Each segment and business unit manages its underwriting risk in accordance with established guidelines. These guidelines place dollar limits on the amount of business that can be written based on a variety of factors, including ceding company profile, line of business, geographic location and risk hazards. In each case, the guidelines permit limited exceptions, which must be authorized by the Company's senior management. Management regularly reviews and revises these guidelines in response to changes in business unit market conditions, risk versus reward analyses and the Company's enterprise and underwriting risk management processes.

The operating results and financial condition of the Company can be adversely affected by catastrophe and other large losses. The Company manages its exposure to catastrophes and other large losses by:

·	selective underwriting practices;

·	diversifying its risk portfolio by geographic area and by types and classes of business;

·	limiting its aggregate catastrophe loss exposure in any particular geographic zone and contiguous zones;

·	purchasing reinsurance and/or retrocessional protection to the extent that such coverage can be secured cost-effectively. See "Reinsurance and Retrocession Arrangements".

Like other insurance and reinsurance companies, the Company is exposed to multiple insured losses arising out of a single occurrence, whether a natural event, such as a hurricane or an earthquake, or other catastrophe, such as an explosion at a major factory.  A large catastrophic event can be expected to generate insured losses to multiple reinsurance treaties, facultative certificates and direct insurance policies across various lines of business.

The Company focuses on potential losses that could result from any single event or series of events as part of its evaluation and monitoring of its aggregate exposures to catastrophic events. Accordingly, the Company employs various techniques to estimate the amount of loss it could sustain from any single catastrophic event or series of events in various geographic areas. These techniques range from deterministic approaches, such as tracking aggregate limits exposed in catastrophe-prone zones and applying reasonable damage factors, to modeled approaches that attempt to scientifically measure catastrophe loss exposure using sophisticated Monte Carlo simulation techniques that forecast frequency and severity of potential losses on a probabilistic basis.

No single computer model, or group of models, is currently capable of projecting the amount and probability of loss in all global geographic regions in which the Company conducts business. In addition, the form, quality and granularity of underwriting exposure data furnished by ceding companies is not uniformly compatible with the data requirements for the Company's licensed models, which adds to the inherent imprecision in the potential loss projections. Further, the results from multiple models and analytical methods must be combined to estimate potential losses by and across business units.  Also, while most models have been updated to incorporate claims information from recent catastrophic events, catastrophe model projections are still inherently imprecise.  In addition, uncertainties with respect to future climatic patterns and cycles could add further uncertainty to loss projections from models based on historical data.

Nevertheless, when combined with traditional risk management techniques and sound underwriting judgment, catastrophe models are a useful tool for underwriters to price catastrophe exposed risks and for providing management with quantitative analyses with which to monitor and manage catastrophic risk exposures by zone and across zones for individual and multiple events.

Projected catastrophe losses are generally summarized in terms of the probable maximum loss ("PML").  The Company defines PML as its anticipated loss, taking into account contract terms and limits, caused by a single catastrophe affecting a broad contiguous geographic area, such as that caused by a hurricane or earthquake.  The PML will vary depending upon the modeled simulated losses and the make-up of the in force book of business.  The projected severity levels are described in terms of "return periods", such as "100-year events" and "250-year events".  For example, a 100-year PML is the estimated loss to the current in-force portfolio from a single event which has a 1% probability of being exceeded in a twelve month period.  In other words, it corresponds to a 99% probability that the loss from a single event will fall below the indicated PML.  It is important to note that PMLs are estimates.  Modeled events are hypothetical events produced by a stochastic model.  As a result, there can be no assurance that any actual event will align with the modeled event or that actual losses from events similar to the modeled events will not vary materially from the modeled event PML.

From an enterprise risk management perspective, management sets limits on the levels of catastrophe loss exposure the Company may underwrite.  The limits are revised periodically based on a variety of factors, including but not limited to the Company's financial resources and expected earnings and risk/reward analyses of the business being underwritten.

The Company may purchase reinsurance to cover specific business written or the potential accumulation or aggregation of exposures across some or all of its operations.  Reinsurance purchasing decisions consider both the potential coverage and market conditions including the pricing, terms, conditions and availability of coverage, with the aim of securing cost effective protection.  The amount of reinsurance purchased has varied over time, reflecting the Company's view of its exposures and the cost of reinsurance.

Management estimates that the projected net economic loss from its largest 100-year event in a given zone represents approximately 13% of its projected 2016 shareholders' equity.  Economic loss is the PML exposure, net of third party reinsurance and the noncontrolling interests of Mt. Logan Re, reduced by estimated reinstatement premiums to renew coverage and estimated income taxes.  The impact of income taxes on the PML depends on the distribution of the losses by corporate entity, which is also affected by inter-affiliate reinsurance.  Management also monitors and controls its largest PMLs at multiple points along the loss distribution curve, such as loss amounts at the 20, 50, 100, 250, 500 and 1,000 year return periods.  This process enables management to identify and control exposure accumulations and to integrate such exposures into enterprise risk, underwriting and capital management decisions.

The Company's catastrophe loss projections, segmented by risk zones, are updated quarterly and reviewed as part of a formal risk management review process. The table below reflects the Company's PML exposure, net of third party reinsurance and the noncontrolling interests of Mt. Logan Re, at various return periods for its top three zones/perils (as ranked by the largest 1 in 100 year events) based on loss projection data as of January 1, 2016:

 

The projected net economic losses for the top three zones/perils scheduled above are as follows:

 

The Southeast U.S. Wind zone PML's are impacted by the timing of retrocessional purchases. The amounts reported in the table above for this zone do not reflect the protection afforded by ILW (Industry Loss Warranty) purchases made during the risk period, as these contracts expired at 12/31/15.  The Company will evaluate its exposures in conjunction with its risk tolerance limits to determine whether additional protections are warranted during the exposure period.

The Company believes that its methods of monitoring, analyzing and managing catastrophe exposures provide a credible risk management framework, which is integrated with its enterprise risk management, underwriting and capital management plans.  However, there is much uncertainty and imprecision inherent in the catastrophe models and the catastrophe loss estimation process generally.  As a result, there can be no assurance that the Company will not experience losses from individual events that exceed the PML or other return period projections, perhaps by a material amount.  Nor can there be assurance that the Company will not experience events impacting multiple zones, or multiple severe events that could, in the aggregate, exceed the Company's PML expectations by a significant amount.

Terrorism Risk.     While the Company writes some reinsurance contracts covering terrorism, the Company's risk management philosophy is to limit the amount of exposure by geographic region, and to strictly manage coverage for properties in areas that may be considered a target for terrorists.  Providing terrorism coverage on reinsurance contracts is negotiable, and many, but not all, treaties contain exclusions which limit much of this risk.  While many property insurance policies are required to offer coverage for terrorism, this coverage is often not purchased.  However, terrorism is typically covered by worker compensation policies.  As a result, the Company is exposed to losses from terrorism on both its reinsurance and its insurance book of business, particularly its workers' compensation and property policies.  However, the insurance book generally does not insure large corporations or corporate locations that represent large concentrations of risk.

The U.S. Terrorism Risk Insurance Program Reauthorization Act of 2015 provides some protection to the insurance book of business.  It also provides indirect protection to exposed reinsurance treaties.  However, the Company is still exposed to risk of loss from terrorism due to deductibles, co-pays and uncovered lines of business.

Reinsurance and Retrocession Arrangements.   The Company may purchase reinsurance to cover specific business written or the potential accumulation or aggregation of exposures across some or all of its operations.  Reinsurance purchasing decisions consider both the potential coverage and market conditions including the pricing, terms, conditions and availability of coverage, with the aim of securing cost effective protection.  The amount of reinsurance purchased has varied over time, reflecting the Company's view of its exposures and the cost of reinsurance.  In recent years, the Company has increased its use of reinsurance offered through capital market facilities.

The Company participates in "common account" retrocessional arrangements for certain reinsurance treaties whereby a ceding company purchases reinsurance for the benefit of itself and its reinsurers under one or more of its reinsurance treaties.  Common account retrocessional arrangements reduce the effect of individual or aggregate losses to all participating companies, including the ceding company, with respect to the involved treaties.

All of the Company's reinsurance and retrocessional agreements transfer significant reinsurance risk and therefore, are accounted for as reinsurance in accordance with the Financial Accounting Standards Board ("FASB") guidance.

At December 31, 2015, the Company had $840.4 million in reinsurance receivables with respect to both paid and unpaid losses ceded.  Of this amount, $194.2 million, or 23.1%, was receivable from Resolution Group Reinsurance (Barbados) Limited ("Resolution Group"); $104.8 million, or 12.5%, was receivable from C.V. Starr (Bermuda) ("C.V. Starr"); $88.1 million, or 10.5%, was receivable from Zurich Vericherungs Gesellschaft ("Zurich"); $49.5 million, or 5.9%, was receivable from Axis Reinsurance Company ("Axis");  $46.6 million, or 5.5%, was receivable from Hannover Rueck SE ("Hannover") and $44.0 million or 5.2% was receivable from Transatlantic Reinsurance Company ("Transatlantic").  The receivables from Resolution Group and C.V. Starr are fully collateralized by individual trust agreements.  No other retrocessionaire accounted for more than 5% of our receivables.  Although management carefully selects its reinsurers, the Company is subject to credit risk with respect to its reinsurance because the ceding of risk to reinsurers does not relieve the Company of its liability to insureds or ceding companies.  See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition".

Claims.

Reinsurance claims are managed by the Company's professional claims staff whose responsibilities include reviewing initial loss reports and coverage issues, monitoring claims handling activities of ceding companies, establishing and adjusting proper case reserves and approving payment of claims.  In addition to claims assessment, processing and payment, the claims staff selectively conducts comprehensive claim audits of both specific claims and overall claim procedures at the offices of selected ceding companies.  Insurance claims are generally handled by third party claims service providers who have limited authority and are subject to oversight by the Company's professional claims staff.

The Company intensively manages its asbestos and environmental ("A&E") exposures through a dedicated, centrally managed claim staff with experienced claim and legal professionals who specialize in the handling of such exposures.  They actively manage each individual insured and reinsured account, responding to claim developments with evaluations of the involved exposures and adjustment of reserves as appropriate.  Specific or general claim developments that may have material implications for the Company are regularly communicated to senior management, actuarial, legal and financial areas.  Senior management and claim management personnel meet at least quarterly to review the Company's overall reserve positions and make changes, if appropriate.  The Company continually reviews its internal processing, communications and analytics, seeking to enhance the management of its A&E exposures, in particular in regard to changes in asbestos claims and litigation.

Reserves for Unpaid Property and Casualty Losses and LAE.

Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the reinsurer and the payment of that loss by the insurer and subsequent payments to the insurer by the reinsurer.  To recognize liabilities for unpaid losses and LAE, insurers and reinsurers establish reserves, which are balance sheet liabilities representing estimates of future amounts needed to pay reported and unreported claims and related expenses for losses that have already occurred.  Actual losses and LAE paid may deviate, perhaps substantially, from such reserves.  To the extent reserves prove to be insufficient to cover actual losses and LAE after taking into account available reinsurance coverage, the Company would have to recognize such reserve shortfalls and incur a charge to earnings, which could be material in the period such recognition takes place.  See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Loss and LAE Reserves".

As part of the reserving process, insurers and reinsurers evaluate historical data and trends and make judgments as to the impact of various factors such as legislative and judicial developments that may affect future claim amounts, changes in social and political attitudes that may increase loss exposures and inflationary and general economic trends. While the reserving process is difficult and subjective for insurance companies, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to the longer time between the date of an occurrence and the reporting of any attendant claims to the reinsurer, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for information regarding reported claims and differing reserving practices among ceding companies. In addition, trends that have affected development of liabilities in the past may not necessarily occur or affect liability development in the same manner or to the same degree in the future.  As a result, actual losses and LAE may deviate, perhaps substantially, from estimates of reserves reflected in the Company's consolidated financial statements.

Like many other property and casualty insurance and reinsurance companies, the Company has experienced adverse loss development for prior accident years, which has led to increases in losses and LAE reserves and corresponding charges to income (loss) in the periods in which the adjustments were made.  There can be no assurance that adverse development from prior years will not continue in the future or that such adverse development will not have a material adverse effect on net income (loss).

Changes in Historical Reserves.

The following table shows changes in historical loss reserves for the Company for 2005 and subsequent years.  The table is presented on a GAAP basis except that the Company's loss reserves for its Canadian branch operations are presented in Canadian dollars, the impact of which is not material.  The top line of the table shows the estimated reserves for unpaid losses and LAE recorded at each year end date.  The upper (paid) portion of the table presents the related cumulative amounts paid through each subsequent year end.  The lower (liability re-estimated) portion shows the re-estimated amount of the original reserves as of the end of each succeeding year.  The reserve estimates have been revised as more information became known about the actual claims for which the reserves were carried.  The cumulative (deficiency)/redundancy line represents the cumulative change in estimates since the initial reserve was established.  It is equal to the initial reserve less the latest estimate of the ultimate liability.

Since the Company has international operations, some of its loss reserves are established in foreign currencies and converted to U.S. dollars for financial reporting.  Changes in conversion rates from period to period impact the U.S. dollar value of carried reserves and correspondingly, the cumulative deficiency line of the table.  However, unlike other reserve development that affects net income (loss), the impact of currency translation is a component of other comprehensive income (loss).  To differentiate these two reserve development components, the translation impacts for each calendar year are reflected in the table of Effects on Pre-tax Income Resulting from Reserve Re-estimates.

Each amount other than the original reserves in the top half of the table below includes the effects of all changes in amounts for prior periods. For example, if a loss settled in 2008 for $100,000, was first reserved in 2005 at $60,000 and remained unchanged until settlement, the $40,000 deficiency (actual loss minus original estimate) would affect the cumulative deficiency for each of the years in 2005 through 2007.  Conditions and trends that have affected development of the ultimate liability in the past are not indicative of future developments.  Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies based on this table.

 

 

There has been minimal development in reserves since 2006.  Two classes of business were the principal contributors to the deficiencies through 2006: 1) the run-off of asbestos claims for both direct and reinsurance business has significantly contributed to the cumulative deficiencies for all years presented through 2006 and 2) property catastrophe adverse development contributed to the deficiency for 2005.

In the professional liability reinsurance class, the early 2000s saw a proliferation of claims relating to bankruptcies and other corporate, financial and/or management improprieties.  This resulted in an increase in the frequency and severity of claims under the professional liability policies reinsured by the Company.  In the general casualty area, the Company has experienced claim frequency and severity greater than expected in the Company's pricing and initial reserving assumptions.

In the workers' compensation insurance class, the majority of which was written in California, the Company has experienced adverse development primarily for accident year 2002 due to higher than expected claim frequency and severity.  As a result of significant growth in this book of business in a challenging business environment, the Company's writings in this class were subject to more relative variability than in some of its established and/or stable lines of business.  Although cumulative results through 2015 continue to be profitable for this book of business, there was some deterioration in claim frequency and severity related to older accident years.

The adverse development on the 2008 outstanding reserves was primarily attributable to foreign exchange rate movements resulting in an increase in the U.S. dollar reserves.  In addition, the Company experienced adverse development on liability exposures for sub-prime for accident years 2006-2008 and contractors' liability exposures for the 2005 accident year.  The contractor liability exposures are currently in run-off.  The Company also experienced adverse development on property lines but was offset by favorable development on other casualty lines.

The Company's loss and LAE reserves represent management's best estimate of the ultimate liability.  While there can be no assurance that these reserves will not need to be increased in the future, management believes that the Company's existing reserves and reserving methodologies reduce the likelihood that any such increases would have a material adverse effect on the Company's financial condition, results of operations or cash flows.  These statements regarding the Company's loss reserves are forward looking statements within the meaning of the U.S. federal securities laws and are intended to be covered by the safe harbor provisions contained therein.  See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Safe Harbor Disclosure".

The following table is derived from the Ten Year GAAP Loss Development Table above and summarizes the effect of reserve re-estimates, net of reinsurance, on calendar year operations by accident year for the same ten year period ended December 31, 2015.  Each column represents the amount of net reserve re-estimates made in the indicated calendar year and shows the accident years to which the re-estimates are applicable.  The amounts in the total accident year column on the far right represent the cumulative reserve re-estimates for the indicated accident years.

Since the Company has operations in many countries, part of the Company's loss and LAE reserves are in foreign currencies and translated to U.S. dollars for each reporting period.  Fluctuations in the exchange rates for the currencies, period over period, affect the U.S. dollar amount of outstanding reserves.  The translation adjustment line at the bottom of the table eliminates the impact of the exchange fluctuations from the reserve re-estimates.