The liability for losses and loss adjustment expenses is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred but not reported.

The Company primarily writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net balance, beginning of period*	$	105,876		$	98,453		$	98,174		$	94,826
Incurred, net of reinsurance, related to:
Current period		40,493			21,416			66,296			45,737
Prior period		(650	)		2,877			1,625			5,552
Total incurred, net of reinsurance		39,843			24,293			67,921			51,289
Paid, net of reinsurance, related to:
Current period		(11,329	)		(13,778	)		(15,813	)		(17,708	)
Prior period		(11,261	)		(13,623	)		(27,153	)		(33,062	)
Total paid, net of reinsurance		(22,590	)		(27,401	)		(42,966	)		(50,770	)
Net balance, end of period		123,129			95,345			123,129			95,345
Add: reinsurance recoverable before allowance for credit losses		88,033			58,897			88,033			58,897
Gross balance, end of period	$	211,162		$	154,242		$	211,162		$	154,242

*Net balance represents beginning-of-period liability for unpaid losses and loss adjustment expenses less beginning-of-period reinsurance recoverable for unpaid losses and loss adjustment expenses.

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or during which such estimates are adjusted. During the three months ended June 30, 2020, the Company derecognized losses related to prior periods of $650 primarily to decrease the reserve for 2019 loss year. For the six months ended June 30, 2020, the Company recognized losses related to prior periods of $1,625 for unfavorable development for 2019 resulting from litigation.