Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Unpaid Losses and Loss Adjustment Expenses

NOTE 7 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The Company’s loss and loss adjustment expense reserves are as follows:

	Year ended December 31
	2012		2011
Direct reserves
Case reserves	$	11,925,272	$	12,771,203
IBNR reserves		37,859,453		41,715,640
Total direct reserves	$	49,784,725	$	54,486,843
Reserves net of reinsurance
Case reserves	$	10,946,621	$	11,815,692
IBNR reserves		32,253,961		34,696,487
Total net reserves	$	43,200,582	$	46,512,179

Reserves for losses and loss adjustment expenses before reinsurance for each of Crusader’s lines of business were as follows:

	Year ended December 31
Line of Business	2012				2011
CMP	$	48,073,951	96.6	%	$	52,198,037	95.8	%
Other liability		1,658,429	3.3	%		2,246,166	4.1	%
Other		52,345	0.1	%		42,640	0.1	%
Total	$	49,784,725	100.0	%	$	54,486,843	100.0	%

The Company‘s consolidated financial statements include estimated reserves for unpaid losses and related loss adjustment expenses of the insurance company operation. The Company sets loss and loss adjustment expense reserves at each balance sheet date based upon management’s best estimate of the ultimate payments that it anticipates will be made to settle all losses incurred and all related loss adjustment expenses incurred as of that date for both reported and unreported claims.

The following table provides an analysis of the roll forward of Crusader’s losses and loss adjustment expenses, including a reconciliation of the ending balance sheet liability for the periods indicated:

	Year ended December 31
	2012			2011			2010
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	46,512,179		$	49,743,381		$	55,409,545
Incurred losses and loss adjustment expenses
Provision for insured events of current year		19,596,313			19,229,785			23,038,294
Decrease in provision for events of prior years		(4,362,910	)		(4,842,458	)		(4,568,179	)
Total losses and loss adjustment expenses		15,233,403			14,387,327			18,470,115
Payments
Losses and loss adjustment expenses attributable to insured events of the current year		7,193,853			5,187,128			8,327,215
Losses and loss adjustment expenses attributable to insured events of prior years		11,351,147			12,431,401			15,809,064
Total payments		18,545,000			17,618,529			24,136,279
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		43,200,582			46,512,179			49,743,381
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		6,584,143			7,974,664			11,816,314
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	49,784,725		$	54,486,843		$	61,559,695

At each review period, actual claims costs that emerge are compared with the claims costs that were expected to emerge during that development period. Sometimes the previous claims costs estimates prove to have been too high; sometimes they prove to have been too low. In the case of the Company, the estimates proved to be too high in each of the years reflected in the table. The favorable development in 2010 through 2012 underscores the inherent uncertainty in insurance claims costs, especially for a very small insurer. Management reviews claims costs that appear to be different from the historical claims costs to determine whether those differences are a normal part of the process or an indication that a change in reserve assumptions is appropriate. Management concluded that the differences noted above are normal differences between actual and expected claims costs that emerge from time to time, particularly in an insurer the size of the Company, and does not believe a change of assumptions to be appropriate.