The Company establishes reserves for unpaid losses and loss adjustment expenses ("LAE") which represent the estimated ultimate cost of all losses incurred that were both reported and unreported (i.e., incurred but not yet reported losses; or “IBNR”) and LAE incurred that remain unpaid at the balance sheet date. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third-party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.

Reserves are estimates of unpaid portions of losses that have occurred, including IBNR losses; therefore, the establishment of appropriate reserves is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in reserve estimates, which may be material, are reported in the results of operations in the period such changes are determined to be needed and recorded.

Management believes that the reserve for losses and LAE is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the consolidated financial statements based on available facts and in accordance with applicable laws and regulations.

The table below provides the changes in the reserves for losses and LAE, net of reinsurance recoverables, for the periods indicated as follows (dollars in thousands):


	Three months ended March 31,
	2024			2023
Gross reserves - beginning of period	$	174,612		$	165,539
Less: reinsurance recoverables on unpaid losses		(70,807	)		(82,651	)
Net reserves - beginning of period		103,805			82,888
Add: incurred losses and LAE, net of reinsurance:
Current period		10,981			14,926
Prior period		(461	)		(1,213	)
Total net incurred losses and LAE		10,520			13,713
Deduct: loss and LAE payments, net of reinsurance:
Current period		2,862			1,987
Prior period		9,444			10,353
Total net loss and LAE payments		12,306			12,340
Net reserves - end of period		102,019			84,261
Plus: reinsurance recoverables on unpaid losses		73,807			61,101
Gross reserves - end of period	$	175,826		$	145,362

Net losses and LAE decreased by $3.2 million, or 23.3%, to $10.5 million during the first quarter of 2024, compared to $13.7 million for the same period in 2023. The decrease was attributable to a $3.9 million decrease in current accident year losses during the first quarter of 2024, compared to the same period in 2023.

The Company’s incurred losses during the three months ended March 31, 2024 included prior-year favorable development of $461,000. Of the $461,000 of favorable development experience during the first quarter of 2024, $508,000 of favorable development was experienced in the Company's personal lines of business, mostly related to accident year 2023. The $508,000 of favorable development in the Company's personal lines was offset by $47,000 of adverse development in the Company's commercial lines of business, mostly related to accident year 2022.

Net losses and LAE were $13.7 million during the first quarter of 2023. The Company experienced favorable development of $1.2 million during the first quarter of 2023, of which $817,000 was related to the Company's commercial lines of business, and $396,000 was related to the personal lines of business. The majority of the favorable development occurred in the 2022 and 2021 accident years. For accident year 2022, the redundancy was due in part to less-than-expected commercial property loss emergence during the first quarter of 2023. For accident year 2021, the claim frequency of the quick service restaurant program was less than expected resulting in a reduction in the estimated ultimate loss. There was $1.8 million of adverse development relating to 2019 and prior accident years that was covered under the Loss Portfolio Transfer ("LPT"), resulting in no net development. As of March 31, 2023, the Company was $2.4 million into the $20.0 million adverse development cover provided by the LPT.