Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2015

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
	2015		2014
Direct reserves:
Case reserves	$	17,991,121	$	14,983,886
IBNR reserves		31,102,450		29,412,672
Total direct reserves	$	49,093,571	$	44,396,558
Reserves net of reinsurance:
Case reserves	$	14,696,913	$	13,045,290
IBNR reserves		24,759,697		26,188,493
Total net reserves	$	39,456,610	$	39,233,783

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	2015				2014
CMP	$	48,167,640	98.1	%	$	43,457,425	97.9	%
Other liability		889,867	1.8	%		911,633	2.0	%
Other		36,064	0.1	%		27,500	0.1	%
Total	$	49,093,571	100.0	%	$	44,396,558	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
	2015			2014			2013
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	39,233,783		$	39,448,546		$	43,200,582
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		21,607,628			17,925,882			20,648,634
Decrease in provision for incurred events of prior years		(2,444,312	)		(3,308,764	)		(4,559,459	)
Total incurred losses and loss adjustment expenses		19,163,316			14,617,118			16,089,175
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		6,812,275			4,286,861			8,096,070
Losses and loss adjustment expenses attributable to insured events of prior years		12,128,214			10,545,020			11,745,141
Total payments		18,940,489			14,831,881			19,841,211
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		39,456,610			39,233,783			39,448,546
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		9,636,961			5,162,775			4,428,283
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	49,093,571		$	44,396,558		$	43,876,829

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 the 2013 through 2015 calendar years 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.