Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Unpaid Losses and Loss Adjustment Expenses

NOTE 8 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Crusader’s loss and loss adjustment expense case and incurred but not reported (“IBNR”) reserves are as follows:

	Year ended December 31
	2016		2015
Direct reserves:
Case reserves	$	16,384,081	$	17,991,121
IBNR reserves		30,671,706		31,102,450
Total direct reserves	$	47,055,787	$	49,093,571
Reserves net of reinsurance:
Case reserves	$	12,458,646	$	14,696,913
IBNR reserves		25,076,171		24,759,697
Total net reserves	$	37,534,817	$	39,456,610

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	2016				2015
Commercial multi-peril	$	46,100,751	98.0	%	$	48,167,640	98.1	%
Other liability		912,014	1.9	%		889,867	1.8	%
Other		43,022	0.1	%		36,064	0.1	%
Total	$	47,055,787	100.0	%	$	49,093,571	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
	2016			2015			2014
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	39,456,610		$	39,233,783		$	39,448,546
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		22,850,408			21,607,628			17,925,882
Decrease in provision for incurred events of prior years		(23,530	)		(2,444,312	)		(3,308,764	)
Total incurred losses and loss adjustment expenses		22,826,878			19,163,316			14,617,118
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		7,984,562			6,812,275			4,286,861
Losses and loss adjustment expenses attributable to insured events of prior years		16,764,109			12,128,214			10,545,020
Total payments		24,748,671			18,940,489			14,831,881
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		37,534,817			39,456,610			39,233,783
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		9,520,970			9,636,961			5,162,775
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	47,055,787		$	49,093,571		$	44,396,558

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 2014 through 2016 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.

The following table presents loss development information by accident year, including cumulative incurred and paid losses and allocated loss adjustment expenses (“ALAE”), net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities plus expected development on reported claims as of December 31, 2016:

Accident Year		Cumulative Incurred		Cumulative Paid		Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims	Cumulative Number of Reported Claims
2007	$	24,023,109	$	24,023,106	$	—	1,013
2008		17,617,589		17,593,260		—	921
2009		18,554,526		17,550,304		842,316	1,013
2010		17,641,161		16,778,214		682,675	974
2011		18,224,634		17,422,583		642,817	1,020
2012		18,050,131		16,734,967		794,910	961
2013		21,742,580		19,067,334		1,430,773	839
2014		14,930,960		9,173,947		3,433,848	732
2015		20,840,034		11,151,955		6,440,742	686
2016		21,646,663		7,435,120		10,808,090	696
Total	$	193,271,387	$	156,930,790	$	25,076,171

The following table reconciles the above cumulative incurred and paid data to Crusader’s loss and loss adjustment expense reserves as of December 31, 2016:

	December 31
	2016
Cumulative incurred losses and ALAE	$	193,271,387
Less: cumulative paid losses and ALAE		(156,930,790	)
Reserve for unpaid losses and ALAE (accident years 2007 to 2016)		36,340,597
Reserves for unpaid losses and ALAE (accident years prior to 2007)		109,898
Reserves for unpaid unallocated loss adjustment expenses		1,084,322
Reserve for unpaid losses and loss adjustment expenses, net of reinsurance		37,534,817
Reinsurance recoverable on unpaid losses and loss adjustment expenses		9,520,970
Reserve for unpaid losses and loss adjustment expenses, gross of reinsurance	$	47,055,787

Crusader's liability for unpaid loss and loss adjustment expense reserves consists of case reserves and reserves for IBNR claims. Case reserves are established by claims personnel based on a review of the facts known at the time the claim is reported and are subsequently revised as more information about a claim becomes known. IBNR is estimated using various actuarial methods and techniques and includes (1) reserves for losses and loss adjustment expenses on claims that have occurred but for which claims have not yet been reported to Crusader, and (2) a provision for expected future development on case reserves for information not currently known.

At the end of each fiscal quarter, Crusader’s reserves for each accident year (i.e., for all claims occurring within each year) are re-evaluated independently by the Company’s president, the Company’s chief financial officer, and an independent consulting actuary.  Generally accepted actuarial methods, including the widely used Bornhuetter-Ferguson and loss development methods, are employed to estimate ultimate claims costs. An actuarial central estimate of the ultimate claims costs and IBNR reserves is ultimately determined by management and tested for reasonableness by the independent consulting actuary.

The Company determines the number of reported claims based on the number of loss events. A claim is considered a single loss event, per policy, and it may include multiple claimants and multiple coverages on a single policy. The cumulative number of reported claims is a sum of open claims, closed claims, and claims closed without payment.