Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2019

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
	2019		2018
Direct reserves:
Case reserves	$	23,663,743	$	23,648,183
IBNR reserves		31,402,737		28,008,972
Total direct reserves	$	55,066,480	$	51,657,155
Reserves net of reinsurance:
Case reserves	$	18,128,008	$	19,855,301
IBNR reserves		22,212,617		22,270,252
Total net reserves	$	40,340,625	$	42,125,553

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	2019				2018
CMP	$	54,270,633	98.6	%	$	50,459,206	97.7	%
Other liability		776,957	1.4	%		1,172,331	2.3	%
Other		18,890	0.0	%		25,618	0.0	%
Total	$	55,066,480	100.0	%	$	51,657,155	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
	2019		2018
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	42,125,553	$	40,683,441
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		19,384,942		20,635,786
Provision for incurred events of prior years		3,191,185		2,921,957
Total incurred losses and loss adjustment expenses		22,576,127		23,557,743
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		6,210,475		6,582,377
Losses and loss adjustment expenses attributable to insured events of prior years		18,150,580		15,533,254
Total payments		24,361,055		22,115,631
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		40,340,625		42,125,553
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		14,725,855		9,531,602
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	55,066,480	$	51,657,155

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, 2019: 

Accident Year		Cumulative Incurred		Cumulative Paid		Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims	Cumulative Number of Reported Claims
2010	$	16,721,160	$	16,721,159	$	—	974
2011		19,156,281		19,133,302		—	1,020
2012		18,355,031		18,001,581		425	967
2013		22,859,132		22,364,215		66,169	849
2014		17,898,306		17,487,722		118,937	759
2015		23,006,844		20,148,880		987,286	744
2016		25,677,378		21,438,785		2,286,224	796
2017		23,876,588		15,289,400		4,081,831	800
2018		18,099,500		9,254,754		6,109,585	595
2019		17,349,941		4,292,275		8,562,160	575
Total	$	203,000,161	$	164,132,073	$	22,212,617

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

	Year ended December 31
	2019			2018
Cumulative incurred losses and ALAE	$	203,000,161		$	200,539,837
Less cumulative paid losses and ALAE		(164,132,073	)		(159,814,942	)
Reserve for unpaid losses and ALAE (latest 10 accident years)		38,868,088			40,724,895
Reserves for unpaid losses and ALAE (beyond latest 10 accident years)		126,042			67,227
Reserves for unpaid unallocated loss adjustment expenses		1,346,495			1,333,431
Reserve for unpaid losses and loss adjustment expenses, net of reinsurance		40,340,625			42,125,553
Reinsurance recoverable on unpaid losses and loss adjustment expenses		14,725,855			9,531,602
Reserve for unpaid losses and loss adjustment expenses, gross of reinsurance	$	55,066,480		$	51,657,155

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.