UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

3 Months Ended

Mar. 31, 2022

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

NOTE 9 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides a roll forward of Crusader’s loss and loss adjustment expense reserves, including a reconciliation of the beginning and ending balance sheet liability for the periods indicated:

	Three Months Ended
	March
	2022		2021
Reserve for unpaid losses and loss adjustment expenses at January 1 – gross of reinsurance	$	82,492,674	$	74,893,509
Less reinsurance recoverable on unpaid losses and loss adjustment expenses		27,116,043		22,253,642
Reserve for unpaid losses and loss adjustment expenses at January 1 – net of reinsurance		55,376,631		52,639,867
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		6,121,111		6,757,564
Development of insured events of prior years		710,393		(1,172,351	)
Total incurred losses and loss adjustment expenses		6,831,504		5,585,213
Loss and loss adjustment expense payments:
Attributable to insured events of the current year		1,099,504		2,545,181
Attributable to insured events of prior years		5,281,946		3,410,932
Total payments		6,381,450		5,956,113
Reserve for unpaid losses and loss adjustment expenses at March 31 – net of reinsurance		55,826,685		52,268,967
Reinsurance recoverable on unpaid losses and loss adjustment expenses		26,431,307		22,133,366
Reserve for unpaid losses and loss adjustment expenses at March 31 – gross of reinsurance	$	82,257,992	$	74,402,333

Some lines of insurance are commonly referred to as “long-tail” lines because of the extended time required before claims are ultimately settled. Lines of insurance in which claims are settled relatively quickly are called “short-tail” lines. It is generally more difficult to estimate loss reserves for long-tail lines because of the long period of time that elapses between the occurrence of a claim and its final disposition and the difficulty of estimating the settlement value of the claim. Crusader’s short-tail lines consist of its property coverages, and its long-tail lines consist of its liability coverages. The Company has reinsurance to mitigate the impact of large losses on the financial position of Crusader.

Termination of Reinsurance Arrangement

On August 31, 2021, Crusader and USIC, terminated the Quota Share Reinsurance Agreement (the "Reinsurance Agreement") effective April 1, 2020, by and between Crusader and USIC. Pursuant to the Reinsurance Agreement, Crusader agreed to reinsure all of USIC's liability for policies issued by USIC and produced by Unifax, for property, general liability, commercial multiple peril ("CMP"), liability and other miscellaneous coverages, subject to certain maximum policy limits. Crusader's obligations under the Reinsurance Agreement continue after termination but issued after termination for business in force at the time of termination, for policies with effective dates prior to the termination but issued after the termination date, and for policies that must be issued or renewed as a matter of law until the expiration of the policies.

On August 31, 2021, as result of the termination of the Reinsurance Agreement, the Surplus Line Broker Agreement (the "Broker Agreement") effective April 1, 2020, by and between Unifax and USIC, automatically terminated. Pursuant to the Broker Agreement, USIC authorized Unifax to act as its broker for the purpose of producing and administering certain specified classes of insurance policies, which are the subject of the Reinsurance Agreement. Unifax's obligations under the Broker Agreement continue after termination for insurance business reinsured under the Broker Agreement. Unifax's obligations including handling and servicing of all policies until their expiration.

On August 31, 2021, as a result of the termination of the Broker Agreement, the Claims Administration Agreement (the "Claims Administration Agreement"), effective April 1, 2020, by and between U.S. Risk and USIC, automatically terminated. Pursuant to the Claims Administration Agreement, USIC appointed U.S. Risk to adjust and settle claims on its behalf in connection with the surplus lines policies issued by USIC in connection with the Reinsurance Agreement. Upon termination of the Claims Administration Agreement, U.S. Risk is obligated (unless revoked by USIC) to continue to manage claims during the runoff of the business reinsured.

The Reinsurance Agreement was mutually terminated by Crusader and USIC. There were no early termination penalties incurred as a result of the termination. The Reinsurance Agreement provides for a minimum ceding fee, and, upon termination of the Reinsurance Agreement, the minimum ceding fee was pro-rated to the date of termination unless there were policies issued after the termination of the Reinsurance Agreement. In such case, the minimum ceding fee will continue past the termination of the Reinsurance Agreement until such time as no further policies are issued. USIC waived any additional ceding fees payable under the Reinsurance Agreement under the agreement to terminate that agreement.

Under the Reinsurance Agreement, Crusader was required to secure its obligations to USIC for unearned premium reserves, if any, and loss reserves (losses incurred and not reported and loss reported but unpaid) in a security fund, trust agreement or letter of credit to permit USIC to receive  credit for the reinsurance ceded to Crusader by USIC. Such security was required because Crusader is not authorized to transact insurance in Delaware the domiciliary state of USIC. Initially, the security required to be provided by Crusader was 150% of the unearned premium and loss reserves. USIC  was permitted to request additional security for the unearned premium and loss reserves in the event (i) the A.M. Best rating Crusader is at any time reduced; or (ii) the A.M. Best rating of Crusader is at any time removed or withdrawn; or (iii) there is a reduction the capital and policyholder surplus of Crusader by 10%  or more in any rolling 12-month period or (iv) Crusader fails to maintain its Cat excess of loss reinsurance coverage at certain levels. As of December 31, 2021, six securities were held as collateral with Comerica, pursuant to the Reinsurance Trust Agreement. The estimated fair value and amortized cost of those securities was $8,243,758 and $8,162,053 on December 31, 2021, respectively. The estimated aggregate fair value and amortized cost of these securities was $7,944,916 and $7,836,756, on March 31, 2022, respectively.

Crusader has no reinsurance recoverable balances in dispute.