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Note 8 - Liability for Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2021

Liability for Future Policy Benefits and Unpaid Claims Disclosure [Text Block]

8. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Details of the liability for unpaid losses and loss adjustment expenses at December 31, 2021 and 2020 are as follows:

	2021		2020
Case basis estimates	$	—	$	8,002,720
IBNR reserves		—		12,933,957
Totals	$	—	$	20,936,677

Liability for losses and loss adjustment expense activity is as follows:

	2021			2020
Liability—beginning of year	$	20,936,677		$	13,966,044
Incurred related to:
Current year		1,478,366			10,512,394
Prior years		—			8,343,976
Total incurred		1,478,366			18,856,370

Paid related to:
Current year		(4,267	)		(1,864,593	)
Prior years		(22,410,776	)		(10,021,144	)
Total paid		(22,415,043	)		(11,885,737	)

Liability—end of year	$	—		$	20,936,677

Current year incurred losses for the year ended December 31, 2021 are derived by multiplying our estimated loss ratio of 64.0% and the net premiums earned as at March 31, 2021, which is the effective date of the Commutation Agreement, as discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Prior year incurred losses represent the net gain that resulted from AMIC Ltd.’s entry into Commutation Agreement and entry in the commutation agreement with CAMIO, as also discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As a result of the change in estimates of insured events in prior years, the provision for losses and loss adjustment expenses increased by $8,343,976 in 2020. The 2020 unfavorable development was primarily due to higher than expected large loss emergence in accident years 2017, 2018 and 2019.

Methodology for Estimating Incurred But Not Reported (IBNR) Reserves

Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and allocated loss adjustment expenses (“ALAE”) for claims that have been reported as of the balance sheet date. Claims and claim adjustment expense reserves do not represent an exact calculation of the liability, but instead represent management estimates, primarily utilizing actuarial expertise and projection methods that develop estimates for the ultimate cost of claims and claim adjustment expenses. Because the establishment of claims and claims adjustment expense reserves is an inherently uncertain process involving estimates and judgment, currently estimated claims and claim adjustment expense reserves may change. The Company reflects changes to the reserves in the results of operations in the period the estimates are changed.

Cumulative amounts paid and case reserves held as of the balance sheet date are subtracted from the estimate of the ultimate cost of claims and claim adjustment expenses to derive IBNR reserves. Accordingly, IBNR reserves includes development on known claims and re-opened claims but not unreported claims because the Company currently only writes coverages on a claims-made basis with limited potential for reporting claims after the expiration of the policy. This approach to estimating IBNR reserves has been in place for several years, with no significant changes in methodology in the past year.

Detailed claim data is typically insufficient to produce a fully reliable indication of the initial estimate for ultimate claims and claim adjustment expenses for a given policy year. As a result, the initial estimate of ultimate loss for a policy year is generally based on the selected ultimate loss in prior year’s review and averages of previous policy year ultimate loss ratios trended forward to the current policy year level.

For prior policy years, the (i) the paid loss development method, (ii) the case incurred development method, (iii) the Bornhuetter-Ferguson (“B-F”) method and (iv) the Cape Cod method are principally used by the Company’s actuaries to estimate the ultimate cost of claims and claim adjustment expenses.

For this table, the Company allocates ultimate loss and ALAE by policy year and development age to accident year primarily based on the proportion of accident year case incurred losses within a given policy year.

Methodology for Determining Cumulative Number of Reported Claims

A claim file is created when the Company is notified of an actual demand for payment, notified of an event that may lead to a demand for payment or when it is determined that a demand for payment could possibly lead to a future demand for payment on another policy. Claim files are created for a policy at the claimant by coverage level, depending on the particular facts and circumstances of the underlying event.

The Company has accumulated claims count information by accident year from the loss data for all claims reported as at March 31, 2021 it received from C&F. The Company’s methodology for determining reported claims count information is on a per claims basis by accident year and is inclusive of claims that are open, re-opened, closed with payment and closed without payment.

	For the Years Ended December 31,																				IBNR Reserves Dec. 31,		Cumulative Number of Reports
	2012		2013		2014		2015		2016		2017		2018		2019		2020		2021		2021		Claims
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2012	$	702	$	763	$	393	$	450	$	429	$	418	$	365	$	361	$	360	$	360	$	0		74
2013				1,218		1,585		1,340		1,166		1,160		926		842		825		826		0		88
2014						2,589		2,640		2,562		2,641		2,743		2,082		2,035		2,034		0		169
2015								3,703		4,485		4,290		3,859		4,768		4,788		4,788		0		240
2016										4,184		4,495		3,927		3,963		3,833		3,834		0		282
2017												5,622		7,647		7,846		9,018		9,017		0		364
2018														5,450		6,523		8,847		8,847		0		442
2019																6,575		11,616		11,615		0		527
2020																		10,512		10,512		0		444
2021																				1,479		0		94
																	Total		$	53,313

	For the Years Ended December 31,																				Liability for Claims And Allocated Claim Adjustment Expenses
	2012		2013		2014		2015		2016		2017		2018		2019		2020		2021		Net of Reinsurance
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		Unaudited)		Unaudited)		Unaudited)						2012 -		Before
	Paid Claims and Allocated Adjustment Expense, Net of Reinsurance																				2021		2011
Accident Year
2012	$	702	$	763	$	393	$	450	$	429	$	418	$	365	$	361	$	350	$	350
2013				1,218		1,585		1,340		1,166		1,160		926		842		818		818
2014						2,589		2,640		2,562		2,641		2,743		2,082		2,012		2,012
2015								3,703		4,485		4,290		3,859		4,768		4,232		4,381
2016										4,184		4,495		3,927		3,963		3,413		3,473
2017												5,622		7,647		7,846		7,305		7,370
2018														5,450		6,523		5,981		6,521
2019																6,575		4,964		5,582
2020																		1,864		2,457
2021																				4
																	Total		$	32,968	$	0		N/A

The following is unaudited supplementary information for average annual historical duration of claims:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Unaudited

Years

7.8

32.5

20.0

11.4

7.1

4.3

1.2

0.0

0.1

0.0