LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The Company’s loss and loss adjustment expense reserves are comprised of:



	●	case reserves resulting from claims notified to the Company by its clients;
	●	incurred but not reported (“IBNR”) losses; and
	●	estimated loss adjustment expenses.

Case reserves are provided by the clients, and IBNR losses are estimated for each reporting period based on a review of all data available for each individual contract in the portfolio.

The Company establishes loss reserves based on estimates of the ultimate cost of all losses including IBNR. These estimated ultimate reserves are based on internal actuarial estimates derived from reports received from ceding companies, industry data and historical experience. These estimates are reviewed by the Company at least quarterly and adjusted when necessary. Since reserves are estimates, the setting of appropriate reserves is an inherently uncertain process. The estimates are based upon actuarial and statistical projections, an assessment of currently available data, predictions of future developments and estimates of future trends and other factors. The final settlement of losses may vary, perhaps materially, from the reserves recorded. All adjustments to the estimates are recorded in the period in which they are determined. U.S. GAAP does not permit establishing loss reserves, which include case reserves and IBNR loss reserves, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future loss events.

For natural peril exposed business, loss reserves are generally established based on loss payments and case reserves reported by clients when, and if, received. Estimates for IBNR losses are added to the case reserves. To establish IBNR loss estimates, the Company uses estimates communicated by ceding companies, industry data and information, knowledge of the business written and management’s judgment.

For all non-natural peril business, initial reserves for each individual contract are based on the expected loss and loss expense ratio calculated at the time the business was originally priced. In the pricing analysis, the Company utilizes a significant amount of information both from the individual client and from industry data. This typically includes, but is not limited to, data related to premiums, losses, exposure, business mix, industry performance and associated trends covering as much history as deemed appropriate. The level of detail within the data obtained varies greatly depending on the underlying contract, line of business, client and/or coverage provided. For example, the Company may receive more detailed data on a workers’ compensation quota share contract with a single counterparty than on a global professional liability book where it takes a small following share of the risk ceded to the reinsurance marketplace. In all cases, the Company requests each client to provide data for each reporting period, which, depending on the contract, could be on a monthly or quarterly basis. The exact data reporting requirements are specified in the terms and conditions of each contract. Where practical, historic reserving data that is received from a client is compared to publicly available financial statements of the client to identify, confirm and monitor the accuracy and completeness of the data. To the extent that relevant client and/or industry data is not available, the Company places reliance on the judgment and experience of its underwriters and actuaries in determining appropriate reserves to hold.

Generally, the Company obtains regular updates of premium and loss related information for the current period and historical periods, which are utilized to update the initial expected loss and loss expense ratio. There may be a time lag from when claims are reported by the underlying insured to the client and subsequently when the client reports the claims to the Company. This time lag may impact the Company’s loss reserve estimates from period to period. Client reports have pre-determined reporting dates of when they are due (for example, fifteen days after month end). As such, the time lag in the client’s reporting depends upon the terms of the specific contract. The timing of the reporting requirements is designed so that the Company receives premium and loss information as soon as practicable once the client has closed its books. Accordingly, there should be a short lag in such reporting. Additionally, most of the contracts that have the potential for large single event losses have provisions that such loss notifications need to be received immediately upon the occurrence of an event. Once the updated information is received, the Company uses a variety of standard actuarial methods for its analysis each quarter. Such methods may include the:



	●	Paid Loss Development Method. Ultimate losses are estimated by calculating past paid loss development factors and applying them to exposure periods with further expected paid loss development. The paid loss development method assumes that losses are paid in a consistent pattern. It provides an objective test of reported loss projections because paid losses contain no reserve estimates.
	●	Reported Loss Development Method. Ultimate losses are estimated by calculating past reported loss development factors and applying them to exposure periods with further expected reported loss development. Since reported losses include payments and case reserves, changes in both of these amounts are incorporated in this method.
	●	Expected Loss Ratio Method. Ultimate losses are estimated by multiplying earned premiums by an expected loss ratio. The expected loss ratio is selected using industry data, historical company data and actuarial professional judgment. This method is typically used for lines of business and contracts where there are no historical losses or where past loss experience is not credible.
	●	Bornhuetter-Ferguson Paid Loss Method. Ultimate losses are estimated by modifying expected loss ratios to the extent that paid losses experienced to date differ from what would have been expected to have been paid based upon the selected paid loss development pattern. This method avoids some of the distortions that could result from a large development factor being applied to a small base of paid losses to calculate ultimate losses.
	●	Bornhuetter-Ferguson Reported Loss Method. Ultimate losses are estimated by modifying expected loss ratios to the extent reported losses experienced to date differ from what would have been expected to have been reported based upon the selected reported loss development pattern. This method avoids some of the distortions that could result from a large development factor being applied to a small base of reported losses to calculate ultimate losses.
	●	Frequency / Severity Method. Ultimate losses are estimated under this method by multiplying the ultimate number of claims (i.e. the frequency multiplied by the exposure base on which the frequency has been determined), by the estimated ultimate average cost per claim (i.e. the severity). By analyzing claims experience by its frequency and severity components, the Company can examine trends and patterns in the rates of claims emergence (i.e. reporting) and settlement (i.e. closure) as well as in the average cost of claims. The approach is valuable because sometimes there is more inherent stability in the frequency and severity data when viewed separately rather than in the total losses.

In addition, the Company may supplement its analysis with other reserving methodologies that are deemed to be relevant to specific contracts.

For each contract, the Company utilizes reserving methodologies that are deemed appropriate to calculate a best estimate, or point estimate, of reserves. The decision of whether to use a single methodology or a combination of multiple methodologies depends upon the segment of the portfolio being analyzed and the judgment of the actuaries. The Company’s reserving methodology does not require a fixed weighting of the various methods used. Certain methods are considered more appropriate depending on the type and structure of the contract, the age and maturity of the contract, and the duration of the expected paid losses on the contract. For example, the data estimation for contracts that are relatively new and therefore, have little paid loss development, is more appropriately considered using the Bornhuetter-Ferguson Reported Loss Method than a paid loss development method.

The Company’s gross aggregate reserves are the sum of the point estimate reserves of all portfolio exposures. Generally, IBNR loss reserves are calculated by estimating the ultimate incurred losses at any point in time and subtracting cumulative paid claims and case reserves, which incorporate specific exposures, loss payment and reporting patterns and other relevant factors. Each quarter, the reserving committee, which is lead by of the Chief Operating Officer meets to assess the adequacy of our loss reserves based on the reserve analysis and recommendations prepared by the Company’s reserving department. The reserving committee reviews, discusses and approves or revises the stated reserves.

Additionally, an independent third-party actuarial firm performs a quarterly reserve review and annually opines on the reasonableness and adequacy of the aggregate loss reserves. The Company provides the third-party actuarial firm with its pricing models, reserving analysis and any other data they may request. Additionally, the actuarial firm may inquire as to the various assumptions and estimates used in the reserving analysis. The external actuarial firm independently creates its own reserving models based on industry loss information, augmented by specific client loss information as well as its own independent assumptions and estimates. Based on various reserving methodologies that the actuarial firm considers appropriate, it creates a loss reserve estimate for each segment in the portfolio and recommends an aggregate loss reserve, including IBNR. If there are material differences between the Company’s aggregate booked reserves and the actuarial firm’s recommended reserves, the differences are reviewed and the booked reserves are adjusted if necessary. To date there have been no material differences resulting from the external actuary’s reviews requiring adjustments to the Company’s booked reserves.

There were no significant changes in the actuarial methodology or assumptions relating to the Company’s loss and loss adjustment expense reserves for the year ended December 31, 2017.

At December 31, 2017 and 2016, loss and loss adjustment expense reserves were comprised of the following:



	2017		2016
	($ in thousands)
Case reserves	$	178,088	$	98,815
IBNR	286,292		207,826
Total	$	464,380	$	306,641

A summary of changes in outstanding loss and loss adjustment expense reserves is presented in the table below.



Consolidated	2017			2016			2015
	($ in thousands)
Gross balance at January 1	$	306,641		$	305,997		$	264,243
Less: Losses recoverable	(2,704		)	(3,368		)	(11,523		)
Net balance at January 1	303,937			302,629			252,720
Incurred losses related to:
Current year	466,247			345,303			266,796
Prior years	36,157			35,512			50,301
Total incurred	502,404			380,815			317,097
Paid losses related to:
Current year	(220,298		)	(156,181		)	(132,017		)
Prior years	(154,183		)	(216,489		)	(132,846		)
Total paid	(374,481		)	(372,670		)	(264,863		)
Foreign currency revaluation	3,061			(6,837		)	(2,325		)
Net balance at December 31	434,921			303,937			302,629
Add: Losses recoverable	29,459			2,704			3,368
Gross balance at December 31	$	464,380		$	306,641		$	305,997

The rollforward of outstanding loss and loss adjustment expense reserves for health claims is as follows:



Health	2017			2016			2015
	($ in thousands)
Gross balance at January 1	$	18,993		$	21,533		$	14,137
Less: Losses recoverable	—			—			—
Net balance at January 1	18,993			21,533			14,137
Incurred losses related to:
Current year	44,539			38,726			34,136
Prior years	3,739			(1,477		)	(2,680		)
Total incurred	48,278			37,249			31,456
Paid losses related to:
Current year	(23,814		)	(22,039		)	(14,090		)
Prior years	(21,276		)	(17,750		)	(9,970		)
Total paid	(45,090		)	(39,789		)	(24,060		)
Foreign currency revaluation	—			—			—
Net balance at December 31	22,181			18,993			21,533
Add: Losses recoverable	—			—			—
Gross balance at December 31	$	22,181		$	18,993		$	21,533

Loss development

Year ended December 31, 2017

For the year ended December 31, 2017, the net losses incurred included $36.2 million related to net adverse loss development on reserves relating to accident years prior to 2017. During the year ended December 31, 2017, the loss development on prior year contracts primarily related to the following:


•	$10.7 million of adverse loss development associated with various classes of professional liability exposure, driven by additional reporting on individual claims, as well as the Company’s assessment of industry wide loss ratio performance;


•	$4.3 million of adverse loss development associated with motor contracts based on re-projection of ultimate losses using client reporting patterns;


•	$4.1 million of adverse loss development relating to Florida homeowners’ insurance contracts, largely driven by “assignment of benefits” issues in the state whereby homeowners assign their rights for filing and settling claims to attorneys and public adjusters;


•	$3.7 million of adverse loss development associated with specialty health contracts arising from frequency of medical claims reported; and


•	$2.2 million of adverse loss development due to large claims reported on a surety contract.

The remaining $11.2 million of adverse development for the year ended December 31, 2017, was due to development across various other casualty and multi-line contracts. There were no other significant developments of prior period loss reserves during the year ended December 31, 2017.

For the year ended December 31, 2016, the net losses incurred included $35.5 million related to net adverse loss development on reserves relating to accident years prior to 2016. During the year ended December 31, 2016, the loss development on prior year contracts primarily related to the following:


●	$19.0 million of losses resulting from the loss portfolio transfer and subsequent novation of legacy construction defect liabilities;


●	$7.0 million of adverse loss development relating to our Florida homeowners’ insurance contracts as a result of deterioration of sinkhole claims and an increase in the practice of “assignment of benefits” whereby homeowners assign their rights for filing and settling claims to attorneys and public adjusters;


●	$6.7 million of adverse loss development relating to our private passenger motor contracts. While the loss indications are close to our expectations, the volume and frequency of unmerited suits served to the cedent by attorneys and medical clinics has resulted in an increase in loss adjustment expenses to defend such claims; and


●	$4.5 million of adverse loss development on an excess of loss contract relating to losses resulting from the U.S. sub-prime crisis.

There were no other significant developments of prior period loss reserves during the year ended December 31, 2016.

For the year ended December 31, 2015, the net losses incurred included $50.3 million related to net adverse loss development on reserves relating to accident years prior to 2015. During the year ended December 31, 2015, the loss development on prior year contracts primarily related to the following:

●

$36.9 million of adverse loss development relating to a general liability contract originally written from 2008 to 2011. This contract contains underlying construction defect liability coverage predominantly on single family homes. During the third quarter of 2015, we completed an in-depth analysis, with the assistance of a third party expert, of the construction defect claims reported and the potential for claims not yet reported on this contract. Based on this assessment, we revised the actuarial methodology used for reserving the construction defect claims on this contract, which resulted in an increase in incurred but not reported losses;

●

$14.7 million of adverse loss development relating to a general liability contract originally written in 2010. This contract contains underlying construction defect liability coverage. Based on updated data received from the insured, we conducted additional actuarial analysis and updated our actuarial input parameters based on consultation with external industry experts. As a result, the average estimated cost per claim was increased;


●	$9.3 million of adverse loss development relating to our Florida homeowners’ insurance contracts as a result of deterioration of sinkhole losses and higher than anticipated water damage claims from rainstorms and increase in the practice of assignment of benefits;


●	$2.4 million of net adverse loss development relating to our solicitors’ professional indemnity contracts as a result of multiple large claims reported during the period and an increase in incurred losses;


●	$5.1 million of favorable loss development relating to an excess of loss property contract resulting in the elimination of loss reserves based on updated loss information received from the insured during the period indicating that no losses will breach into our layer of coverage;


●	$4.5 million of favorable loss development relating to private passenger motor contracts during the period;


●	$2.3 million of favorable loss development relating to the employer medical stop-loss business as a result of better than expected claims frequency reported by the cedent; and


●	$1.3 million of loss reserves released upon commutation of a private passenger motor contract during the period.

There were no other significant developments of prior period loss reserves during the year ended December 31, 2015.

Disclosures about Short Duration Contracts

The Company manages its business on the basis of one operating segment, property & casualty reinsurance. Within the property and casualty reinsurance segment, management analyzes the underwriting operations using two categories: frequency business; and severity business. Frequency business is generally characterized as contracts containing a potentially large number of small losses emanating from multiple events. Severity business is generally characterized as contracts with the potential for significant losses emanating from one event or multiple events.

For each of the frequency and severity categories, the following tables presents the incurred and paid claims development as of December 31, 2017, net of retrocession, as well as the total of incurred but not reported liabilities plus expected development on reported claims included within the net incurred claims amount. As required by U.S. GAAP, health claims have been disaggregated and presented separately.

The information in the tables below about incurred and paid claims development for the years ended December 31, 2008 to 2016, is presented as unaudited supplementary information.



Frequency - Health
	Incurred claims and allocated claim adjustment expenses, net of reinsurance																				December 31, 2017
	For the years ended December 31,																				Total IBNR plus expected development on reported claims
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	10,593	$	11,677	$	11,432	$	11,361	$	12,150	$	11,249	$	11,249	$	11,247	$	11,279	$	11,247	$	—
2009	—		24,905		23,884		23,393		23,402		23,402		23,402		23,401		23,401		23,401		—
2010	—		—		36,066		35,968		49,492		36,120		36,120		36,107		36,107		36,107		—
2011	—		—		—		36,088		36,145		35,755		35,737		35,533		35,540		35,533		—
2012	—		—		—		—		10,494		9,781		9,723		9,621		9,621		9,621		—
2013	—		—		—		—		—		43,895		46,969		47,301		47,045		47,032		—
2014	—		—		—		—		—		—		32,845		30,154		29,455		29,042		—
2015	—		—		—		—		—		—		—		34,136		33,576		34,201		—
2016	—		—		—		—		—		—		—		—		37,726		41,305		1,456
2017	—		—		—		—		—		—		—		—		—		44,539		20,725
																	Total		$	312,028



Frequency - Health
	Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
	For the years ended December 31,
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	4,199	$	10,890	$	11,294	$	11,277	$	11,415	$	11,249	$	11,249	$	11,247	$	11,247	$	11,247
2009	—		8,617		23,088		23,392		23,402		23,402		23,402		23,401		23,401		23,401
2010	—		—		17,771		35,609		41,477		36,120		36,120		36,107		36,107		36,107
2011	—		—		—		27,104		35,615		35,755		35,737		35,533		35,533		35,533
2012	—		—		—		—		9,342		9,670		9,723		9,621		9,621		9,621
2013	—		—		—		—		—		34,515		46,969		47,112		47,045		47,032
2014	—		—		—		—		—		—		19,040		28,486		29,159		29,042
2015	—		—		—		—		—		—		—		14,561		32,043		34,201
2016	—		—		—		—		—		—		—		—		20,601		39,850
2017	—		—		—		—		—		—		—		—		—		23,814
																	Total		289,848
							All outstanding liabilities before 2008, net of reinsurance												—
			Liabilities for claims and claims adjustment expenses, net of reinsurance (Health)																$	22,181



Frequency - Non-Health
	Incurred claims and allocated claim adjustment expenses, net of reinsurance																				December 31, 2017
	For the years ended December 31,																				Total IBNR plus expected development on reported claims
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	38,126	$	34,675	$	35,893	$	38,669	$	40,523	$	40,518	$	41,620	$	42,078	$	41,707	$	41,785	$	33
2009	—		79,796		91,523		101,259		109,936		106,040		107,323		112,312		111,741		111,812		31
2010	—		—		130,449		144,489		162,112		161,414		165,504		173,764		176,608		176,594		392
2011	—		—		—		173,216		189,690		200,216		212,697		235,787		254,723		254,984		1,563
2012	—		—		—		—		268,511		271,334		270,409		287,025		286,548		287,482		2,192
2013	—		—		—		—		—		309,833		305,919		306,524		308,783		309,694		3,912
2014	—		—		—		—		—		—		178,117		178,247		181,753		183,986		11,151
2015	—		—		—		—		—		—		—		225,244		230,745		236,109		37,080
2016	—		—		—		—		—		—		—		—		291,180		304,962		82,755
2017	—		—		—		—		—		—		—		—		—		367,342		185,910
																	Total		$	2,274,750



Frequency - Non-Health
	Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
	For the years ended December 31,
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	10,345	$	25,145	$	31,686	$	36,587	$	39,151	$	40,269	$	41,190	$	41,310	$	41,707	$	41,752
2009	—		26,518		62,220		81,055		94,851		99,832		103,833		105,493		111,741		111,781
2010	—		—		50,177		100,334		127,823		143,989		156,396		161,725		176,146		176,201
2011	—		—		—		78,846		134,140		168,209		185,591		203,255		252,684		253,421
2012	—		—		—		—		121,538		236,556		253,949		262,086		283,653		285,290
2013	—		—		—		—		—		145,593		264,730		291,231		301,772		305,782
2014	—		—		—		—		—		—		82,244		149,445		161,064		172,834
2015	—		—		—		—		—		—		—		109,376		179,725		199,029
2016	—		—		—		—		—		—		—		—		132,142		222,207
2017	—		—		—		—		—		—		—		—		—		181,431
																	Total		1,949,728
							All outstanding liabilities before 2008, net of reinsurance												—
			Liabilities for claims and claims adjustment expenses, net of reinsurance (Frequency)																$	325,021



Severity
	Incurred claims and allocated claim adjustment expenses, net of reinsurance																				December 31, 2017
	For the years ended December 31,																				Total IBNR plus expected development on reported claims
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	16,466	$	19,329	$	18,026	$	18,028	$	17,469	$	19,583	$	19,582	$	17,843	$	20,212	$	20,212	$	4,810
2009	—		19,093		15,372		14,970		14,329		14,183		14,010		10,820		10,796		10,844		6,381
2010	—		—		4,522		5,147		14,079		14,042		14,291		14,194		14,507		14,358		2,570
2011	—		—		—		5,071		5,069		5,068		5,079		5,074		5,081		5,082		28
2012	—		—		—		—		15,000		—		—		—		—		—		—
2013	—		—		—		—		—		2,885		1,807		1,507		1,501		1,502		—
2014	—		—		—		—		—		—		4,749		4,750		4,624		4,745		1,772
2015	—		—		—		—		—		—		—		8,204		8,354		10,161		5,753
2016	—		—		—		—		—		—		—		—		17,265		20,108		16,005
2017	—		—		—		—		—		—		—		—		—		58,659		43,606
																	Total		$	145,671



Severity
	Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
	For the years ended December 31,
Accident year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(Unaudited - Supplementary Information)
	($ in thousands)
2008	$	—	$	—	$	3,148	$	6,391	$	10,320	$	10,356	$	10,356	$	10,504	$	15,243	$	15,402
2009	—		276		2,582		3,364		3,753		3,902		3,952		4,172		4,194		4,463
2010	—		—		281		862		1,112		1,237		5,899		6,069		11,588		11,788
2011	—		—		—		24		5,033		5,038		5,044		5,047		5,048		5,054
2012	—		—		—		—		—		—		—		—		—		—
2013	—		—		—		—		—		94		729		1,224		1,491		1,502
2014	—		—		—		—		—		—		1,558		2,457		2,933		2,974
2015	—		—		—		—		—		—		—		473		1,306		4,408
2016	—		—		—		—		—		—		—		—		876		4,103
2017	—		—		—		—		—		—		—		—		—		15,053
																	Total		64,747
							All outstanding liabilities before 2008, net of reinsurance												2,486
			Liabilities for claims and claims adjustment expenses, net of reinsurance (Severity)																$	83,412

For any incurred and paid claims denominated in a currency other than U.S. dollars, the above tables are presented using the foreign exchange rate in effect as of the current year end date. As a result, all prior year information has been restated to reflect the exchange rates as of December 31, 2017. This removes any changes in foreign currency exchange rates from distorting the claims development between the years presented.

For assumed contracts the Company does not generally receive claims information by accident year from the ceding insurers, but instead receives claims information by the treaty year of the contract. Claims reported by the ceding insurer to the Company may have the covered losses occurring in an accident year other than the treaty year. For the purpose of the loss development tables, the incurred and paid claims have been allocated to the accident years based on the proportion of premiums earned for each contract during such accident year.

For example, a one-year treaty incepting on October 1, 2010 (with underlying policies each having a one-year duration), would have a 24-month period over which the premiums would be earned. Therefore, claims would be allocated to accident years 2010, 2011 and 2012 based on the proportion of the premiums earned during each accident year. For illustration of this contract, any claims reported during 2010 would be allocated to the 2010 accident year. For losses reported during 2011, the claims would be allocated between 2010 and 2011 based on the percentage of premiums earned during 2010 and 2011. Similarly, for losses reported during 2012 and thereafter, the losses would be allocated to the 2010, 2011 and 2012 accident years based on the proportion of premiums earned during each of those years. However, natural catastrophe losses are treated separately and losses arising from such events are allocated to the specific accident year in which they occurred.

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheet is as follows:



	December 31, 2017		December 31, 2016
	($ in thousands)
Net outstanding liabilities
Health	$	22,181	$	18,993
Frequency - non-health	325,021		239,151
Severity	83,412		42,178
Liabilities for claims and claims adjustment expenses, net of reinsurance	430,614		300,322
Add: Reinsurance recoverable on unpaid claims	29,459		2,704
Add: Unallocated claims adjustment expenses	4,307		3,615
Total gross liabilities for unpaid claims and claim adjustment expense	$	464,380	$	306,641

The average historical annual percentage payout of net incurred claims (excluding health) as of the year ended December 31, 2017 is as follows:



Years	1		2		3		4		5		6		7		8		9		10
	(Unaudited - Supplementary Information)
Frequency - Non-health	37.3	%	30.5	%	9.5	%	5.7	%	5.0	%	6.8	%	2.9	%	1.9	%	0.3	%	0.1	%
Severity	3.1	%	11.8	%	9.5	%	8.5	%	18.0	%	4.0	%	10.1	%	0.8	%	16.1	%	18.1	%

The historical annual percentage payout pattern for health claims is excluded from the table above because health claims have short settlement periods and including it would skew the results presented. In addition, the payout percentages for the severity business are expected to fluctuate, sometimes significantly, due to the volatile nature of the loss experience emerging on such contracts.

As a reinsurance entity, the Company does not consistently receive detailed claims frequency information or claims counts, from ceding insurers and third party claim handlers. Due to the nature of the reinsurance contracts, the underlying insured reports claims to the insurer who cedes losses to the Company. The Company is contractually obligated to reimburse the ceding insurer for its share of the losses. While the Company has the right to conduct audits of the ceding insurer’s claims files, the insurer is generally not obligated to provide detailed listing of claims counts or other claims frequency information to the Company. Therefore it is impracticable for the Company to present the cumulative number of reported claims by accident year.