Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2022

Insurance [Abstract]

Losses and Loss Adjustment Expenses

Note 14 -- Losses and Loss Adjustment Expenses

The Company establishes reserves for the estimated total unpaid costs of losses including LAE. Loss and LAE reserves reflect management’s best estimate of the total cost of (i) claims that have been incurred, but not yet paid in full, and (ii) claims that have been incurred but not yet reported to the Company (“IBNR”). Reserves established by management represent an estimate of the outcome of future events and, as such, cannot be considered an exact calculation of our liability. Rather, loss and LAE reserves represent management’s best estimate of the Company’s liability based on the application of actuarial techniques and other projection methodologies and taking into consideration other facts and circumstances known at the balance sheet date. The process of establishing loss and LAE reserves is complex and inherently imprecise, as it involves the estimation of the outcome of future uncertain events. The impact of both internal and external variables on ultimate losses and LAE costs is difficult to estimate. In determining loss and LAE reserves, the Company gives careful consideration to all available data and actuarial analyses.

When a claim is reported to the Company, the claims personnel establish a “case reserve” for the estimated amount of the ultimate amount payable to settle the claim. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of the claims adjuster. The individual estimating the reserve considers the nature and value of the specific claim, the severity of injury or damage, location, and the policy provisions relating to the type of loss. Case reserves are adjusted as more information becomes available. It is the Company’s policy to settle each claim as expeditiously as possible.

Reserves are closely monitored and are recalculated periodically using the most recent information on reported claims and a variety of actuarial techniques. Specifically, claims management personnel complete weekly and ongoing reviews of existing case reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior years. As the Company continues to expand historical data regarding paid and incurred losses, the data is used to develop expected ultimate loss and LAE ratios, then these expected loss and LAE ratios are applied to earned premium to derive a reserve level for each line of business. In connection with the determination of these reserves, other specific factors such as recent weather-related losses, trends in historical reported and paid losses, and litigation and judicial trends regarding liability will also be considered. Therefore, the loss ratio method, among other methods, is used to project an ultimate loss expectation, and then the related loss history must be regularly evaluated and loss expectations updated, with the possibility of variability from the initial estimate of ultimate losses.

The Company maintains IBNR reserves to provide for claims that have been incurred but have not been reported and subsequent development on reported claims. The IBNR reserve is determined by estimating the Company’s ultimate net liability for both reported and unreported claims and then subtracting the case reserves and payments made to date for reported claims.

Loss and LAE Reserve Estimation Methods. The Company applies the following general methods in projecting reserves for losses and LAE:

•Reported loss development;

•Paid loss development;

•Paid Bornhuetter-Ferguson method;

•Reported Experience-Modified Bornhuetter-Ferguson method;

•Paid Experience-Modified Bornhuetter-Ferguson method;

•Loss ratio method;

•Several variations of the Frequency-Severity method, depending on exposure; and

•A factor load to loss and allocated LAE reserves for the unallocated LAE.

Selected reserves are based on a review of the indications from these methods as well as other considerations such as emergence since the most recent evaluation and number of open claims for a given accident period.

Currently, the estimated ultimate liability is calculated using the principles and procedures described above, which are applied to the lines of business written. However, because the establishment of loss and LAE reserves is an inherently uncertain process, ultimate losses and LAE may exceed the established loss and LAE reserves and have a material, adverse effect on our results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

The Company’s reported results, financial position and liquidity would be affected by likely changes in key assumptions that determine the net loss reserves. However, it is believed that a reasonably likely increase or decrease in the severity of claims could impact our net loss reserves.

Activity in the liability for losses and LAE is summarized as follows:

	Years Ended December 31,
	2022			2021			2020
Net balance, beginning of year*	$	172,410		$	141,065		$	98,174
Incurred, net of reinsurance, related to:
Current year		330,836			199,888			158,236
Prior years		40,627			27,637			1,800
Total incurred, net of reinsurance		371,463			227,525			160,036
Paid, net of reinsurance, related to:
Current year		(169,641	)		(95,809	)		(71,772	)
Prior years		(127,686	)		(100,371	)		(45,373	)
Total paid, net of reinsurance		(297,327	)		(196,180	)		(117,145	)
Net balance, end of year		246,546			172,410			141,065
Add: reinsurance recoverable before allowance for credit losses		617,219			64,755			71,104
Gross balance, end of year	$	863,765		$	237,165		$	212,169

* Net balance represents beginning-of-year liability for unpaid losses and LAE less beginning-of-year reinsurance recoverable for unpaid losses and LAE.

The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are adjusted. During the year ended December 31, 2022, the Company recognized losses related to prior years of $40,627 primarily to increase reserves in response to increased litigation.

On September 28, 2022, Hurricane Ian made landfall in southwestern Florida as a dangerous, high-end Category 4 storm. After crossing the Florida peninsula, it made a second landfall on September 30, 2022 in coastal South Carolina. Gross losses and LAE related to Hurricane Ian were estimated at $847,500 for all insurance lines of business, including $452,050 for HCPCI Insurance Operations and $395,450 for TypTap. After reinsurance recoveries, losses and LAE retained by the Company were approximately $65,300 for the year ended December 31, 2022. Of the total losses and LAE retained by the Company, $7,000 was attributable to flood losses exceeding the maximum amount of coverage

provided by reinsurers. As a result, the Company will be responsible for covering additional losses if the flood ultimate losses are later revised upward. Losses and LAE for the 2022 loss year included net estimated losses of approximately $81,651 related to United policies assumed, renewed and/or replaced and $6,500 related to Hurricane Nicole.

The following is information about incurred and paid claims development as of December 31, 2022, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2015 to 2013 is presented as supplementary information and is unaudited.

Homeowners Multi-peril and Dwelling Fire Insurance (a)

																					As of December 31, 2022
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,																				Total of IBNR Plus Expected Development Reported		Cumulative Number of Reported Claims (Not in Dollar
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		Claims		Amounts) (b)
2013	$	67,579	$	69,932	$	69,906	$	72,015	$	71,604	$	73,763	$	74,043	$	74,543	$	74,543	$	74,454	$	14		7,009
2014		—		75,810		81,773		84,917		88,053		90,084		92,454		92,945		93,181		93,358		372		7,661
2015		—		—		78,017		90,902		96,173		101,272		102,149		102,587		103,135		103,671		266		7,665
2016		—		—		—		81,446		90,879		92,684		92,986		92,752		92,333		92,738		371		6,936
2017		—		—		—		—		91,443		88,937		89,652		90,958		90,877		90,652		1,265		5,776
2018		—		—		—		—		—		79,436		83,976		83,123		83,234		82,816		3,569		4,771
2019		—		—		—		—		—		—		95,467		94,018		96,821		99,754		7,916		5,401
2020		—		—		—		—		—		—		—		126,086		133,349		159,758		15,460		8,253
2021		—		—		—		—		—		—		—		—		187,164		186,606		44,550		11,754
2022		—		—		—		—		—		—		—		—		—		263,626		127,833		12,563
Total																			$	1,247,433

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022
2013	$	40,240	$	57,374	$	64,257	$	68,106	$	70,224	$	72,492	$	73,420	$	73,986	$	74,260	$	74,440
2014		—		47,650		68,897		77,712		82,463		87,125		90,707		92,264		92,924		92,986
2015		—		—		50,939		76,042		87,784		95,179		99,200		101,424		102,486		103,405
2016		—		—		—		51,663		73,037		83,311		89,144		90,989		92,001		92,367
2017		—		—		—		—		43,039		66,996		78,808		83,383		86,364		89,387
2018		—		—		—		—		—		41,014		63,958		71,809		76,311		79,247
2019		—		—		—		—		—		—		47,471		70,182		81,941		91,839
2020		—		—		—		—		—		—		—		56,173		108,388		144,298
2021		—		—		—		—		—		—		—		—		85,895		142,054
2022		—		—		—		—		—		—		—		—		—		135,793
Total																			$	1,045,816
All outstanding liabilities before 2013, net of reinsurance																				10
Liabilities for loss and LAE, net of reinsurance																			$	201,627

(a)Excludes losses from Wind-only insurance (2013 through 2022) and any hurricane and storm events prior to 2022.

(b)The cumulative number of reported claims is measured as the number of per-policyholder, per-event claims for all coverages regardless of whether the claim results in loss or expense to the Company.

Homeowners Wind-only Insurance (a) *

																					As of December 31, 2022
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,																				Total of IBNR Plus Expected Development Reported		Cumulative Number of Reported Claims (Not in Dollar
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		Claims		Amounts) (b)
2015	$	—	$	—	$	308	$	401	$	569	$	692	$	605	$	582	$	582	$	582	$	—		100
2016		—		—		—		1,005		1,314		1,814		1,853		1,837		2,255		1,948		4		228
2017		—		—		—		—		1,529		1,119		815		792		923		991		199		157
2018		—		—		—		—		—		798		708		1,061		1,109		1,226		302		137
2019		—		—		—		—		—		—		1,132		1,501		1,833		2,359		589		154
2020		—		—		—		—		—		—		—		1,621		1,970		3,386		951		193
2021		—		—		—		—		—		—		—		—		682		1,257		458		114
2022		—		—		—		—		—		—		—		—		—		1,284		580		122
Total																			$	13,033

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022
2015	$	—	$	—	$	156	$	332	$	465	$	582	$	582	$	582	$	582	$	582
2016		—		—		—		689		1,155		1,405		1,772		1,821		1,843		1,944
2017		—		—		—		—		484		786		789		792		792		792
2018		—		—		—		—		—		216		607		745		899		925
2019		—		—		—		—		—		—		828		1,290		1,451		1,770
2020		—		—		—		—		—		—		—		567		1,461		2,435
2021		—		—		—		—		—		—		—		—		415		799
2022		—		—		—		—		—		—		—		—		—		704
Total																			$	9,951
Liabilities for loss and LAE, net of reinsurance																			$	3,082

* The Company began writing Homeowners Wind-only insurance in 2015.

(a)Excludes losses from multi-peril and dwelling fire insurance (2013 through 2022) and any hurricane and storm events prior to 2022.

(b)The cumulative number of reported claims is measured as the number of per-policyholder, per-event claims for all coverages regardless of whether the claim results in loss or expense to the Company.

Losses Specific to Any Hurricane and Storm Events prior to 2022

																					As of December 31, 2022
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,																				Total of IBNR Plus Expected Development Reported		Cumulative Number of Reported Claims (Not in Dollar
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		Claims		Amounts) (b)
2016	$	—	$	—	$	—	$	21,414	$	24,126	$	26,211	$	28,133	$	27,634	$	27,634	$	27,634	$	488		2,420
2017		—		—		—		—		53,602		54,080		53,557		53,624		53,628		53,636		2		21,776
2018		—		—		—		—		—		16,543		16,532		16,532		16,532		16,476		—		1,719
2019		—		—		—		—		—		—		—		—		—		—		—		144
2020		—		—		—		—		—		—		—		30,264		46,284		55,235		8,179		3,291
2021		—		—		—		—		—		—		—		—		11,689		13,000		384		2,597
2022		—		—		—		—		—		—		—		—		—		—		—		11
Total																			$	165,981

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022
2016	$	—	$	—	$	—	$	12,227	$	20,025	$	23,316	$	25,849	$	26,098	$	26,807	$	27,146
2017		—		—		—		—		43,905		47,514		47,524		49,425		53,216		53,634
2018		—		—		—		—		—		13,391		15,992		16,436		16,477		16,476
2019		—		—		—		—		—		—		—		—		—		—
2020		—		—		—		—		—		—		—		14,964		34,771		47,056
2021		—		—		—		—		—		—		—		—		9,323		12,616
2022		—		—		—		—		—		—		—		—		—		—
Total																			$	156,928
Liabilities for loss and LAE, net of reinsurance																			$	9,053

(b)The cumulative number of reported claims is measured as the number of per-policyholder, per-event claims for all coverages regardless of whether the claim results in loss or expense to the Company.

Losses Specific to Hurricane Ian (2022)

																					As of December 31, 2022
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,																				Total of IBNR Plus Expected Development Reported		Cumulative Number of Reported Claims (Not in Dollar
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		Claims		Amounts) (b)
2022	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	65,325	$	32,327		12,861
Total																			$	65,325

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31,
Year	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022
2022	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	32,998
Total																			$	32,998
Liabilities for loss and LAE, net of reinsurance																			$	32,327

(b) The cumulative number of reported claims is measured as the number of per-policyholder, per-event claims for all coverages regardless of whether the claim results in loss or expense to the Company.

The reconciliation of the net incurred and paid loss development tables to the liability for losses and loss adjustment expenses is as follows:

	December 31,
	2022		2021
Net outstanding liabilities
Homeowners multi-peril and dwelling fire insurance	$	201,627	$	155,147
Homeowners Wind-only insurance		3,082		1,911
Losses specific to any hurricane and storm events prior to 2022		9,053		15,172
Losses specific to Hurricane Ian (2022)		32,327		—
Other short-duration insurance lines		457		180
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance		246,546		172,410
Reinsurance recoverables		617,219		64,755
Total gross liability for unpaid losses and loss adjustment expenses	$	863,765	$	237,165

The following is supplementary and unaudited information about average historical claims duration as of December 31, 2022:

Average Annual Percentage Payout of Incurred Losses
by Age, Net of Reinsurance
Years	1			2			3			4			5			6			7			8			9			10
Homeowners multi-peril and dwelling fire    insurance		48.1	%		22.4	%		8.9	%		3.6	%		0.2	%		1.1	%		0.4	%		0.0	%		0.0	%		0.0	%
Homeowners Wind-only insurance		31.2	%		23.6	%		12.7	%		7.4	%		0.1	%		0.2	%		0.8	%		0.0	%	*			*
Other short-duration insurance lines		55.7	%		24.7	%		2.0	%		0.0	%		0.0	%		0.0	%		0.0	%		—			—			—
Losses specific to any hurricane and storm    events prior to 2022		56.5	%		22.0	%		9.9	%		2.7	%		2.5	%		0.7	%		0.2	%		—			—			—
Losses specific to Hurricane Ian (2022)		50.5	%		—			—			—			—			—			—			—			—			—

* The Company began writing Homeowners Wind-only insurance in 2015.