Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

Unpaid Losses and Loss Adjustment Expenses

NOTE 7 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Crusader’s loss and loss adjustment expense reserves are as follows:

	Year ended December 31
	2014		2013
Direct reserves
Case reserves	$	14,983,886	$	12,773,733
IBNR reserves		29,412,672		31,103,096
Total direct reserves	$	44,396,558	$	43,876,829
Reserves net of reinsurance
Case reserves	$	13,045,290	$	11,707,102
IBNR reserves		26,188,493		27,741,444
Total net reserves	$	39,233,783	$	39,448,546

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

	Year ended December 31
Line of Business	2014				2013
CMP	$	43,457,425	97.9	%	$	42,778,814	97.5	%
Other liability		911,633	2.0	%		1,022,463	2.3	%
Other		27,500	0.1	%		75,552	0.2	%
Total	$	44,396,558	100.0	%	$	43,876,829	100.0	%

The Company‘s consolidated financial statements include estimated reserves for unpaid losses and related loss adjustment expenses of the insurance company operation. Crusader 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 loss and loss adjustment expense reserves, including a reconciliation of the ending balance sheet liability for the periods indicated:

	Year ended December 31
	2014			2013			2012
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	39,448,546		$	43,200,582		$	46,512,179
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		17,925,882			20,648,634			19,596,313
Decrease in provision for incurred events of prior years		(3,308,764	)		(4,559,459	)		(4,362,910	)
Total incurred losses and loss adjustment expenses		14,617,118			16,089,175			15,233,403
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		4,286,861			8,096,070			7,193,853
Losses and loss adjustment expenses attributable to insured events of prior years		10,545,020			11,745,141			11,351,147
Total payments		14,831,881			19,841,211			18,545,000
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		39,233,783			39,448,546			43,200,582
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		5,162,775			4,428,283			6,584,143
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	44,396,558		$	43,876,829		$	49,784,725

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 Crusader, the estimates proved to be too high in each of the years reflected in the table. The favorable development in 2012 through 2014 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 differences between actual and expected claims costs that emerge from time to time, particularly in an insurer the size of Crusader.