Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2018

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
	2018		2017
Direct reserves:
Case reserves	$	23,648,183	$	18,948,233
IBNR reserves		28,008,972		30,128,758
Total direct reserves	$	51,657,155	$	49,076,991
Reserves net of reinsurance:
Case reserves	$	19,855,301	$	14,985,639
IBNR reserves		22,270,252		25,697,802
Total net reserves	$	42,125,553	$	40,683,441

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	2018				2017
CMP	$	50,459,206	97.7	%	$	48,003,282	97.8	%
Other liability		1,172,331	2.3	%		1,060,328	2.2	%
Other		25,618	0.0	%		13,381	0.0	%
Total	$	51,657,155	100.0	%	$	49,076,991	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
	2018		2017
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	40,683,441	$	37,534,817
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		20,635,786		23,377,228
Provision for incurred events of prior years		2,921,957		7,113,279
Total incurred losses and loss adjustment expenses		23,557,743		30,490,507
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		6,582,377		7,925,460
Losses and loss adjustment expenses attributable to insured events of prior years		15,533,254		19,416,423
Total payments		22,115,631		27,341,883
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		42,125,553		40,683,441
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		9,531,602		8,393,550
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	51,657,155	$	49,076,991

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. The fluctuation in development of insured events of prior years underscores the inherent uncertainty in insurance claims costs, especially for a relatively small insurer, such as Crusader. 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, 2018:

Accident Year		Cumulative Incurred		Cumulative Paid		Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
	2009	$	17,619,015	$	17,568,228	$	—		1,013
	2010		16,822,859		16,721,059		—		974
	2011		19,094,732		19,087,866		—		1,020
	2012		18,235,335		17,638,646		153,904		967
	2013		22,397,394		21,875,978		171,857		849
	2014		18,034,749		16,843,128		594,893		757
	2015		21,707,615		17,700,688		1,846,071		725
	2016		24,126,775		15,916,432		3,180,439		787
	2017		23,453,130		11,503,228		6,990,158		782
	2018		19,048,233		4,959,689		9,332,930		528
	Total	$	200,539,837	$	159,814,942	$	22,270,252

The following table reconciles the above cumulative incurred and paid data to Crusader’s loss and loss adjustment expense reserves:

	Year ended December 31
	2018			2017
Cumulative incurred losses and ALAE	$	200,539,837		$	196,783,974
Less cumulative paid losses and ALAE		(159,814,942	)		(157,445,399	)
Reserve for unpaid losses and ALAE (latest 10 accident years)		40,724,895			39,338,575
Reserves for unpaid losses and ALAE (beyond latest 10 accident years)		67,227			237,800
Reserves for unpaid unallocated loss adjustment expenses		1,333,431			1,107,066
Reserve for unpaid losses and loss adjustment expenses, net of reinsurance		42,125,553			40,683,441
Reinsurance recoverable on unpaid losses and loss adjustment expenses		9,531,602			8,393,550
Reserve for unpaid losses and loss adjustment expenses, gross of reinsurance	$	51,657,155		$	49,076,991

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.