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 June 30,						Six months ended June 30,
	2024			2023			2024			2023
Gross reserves - beginning of period	$	175,826		$	145,362		$	174,612		$	165,539
Less: reinsurance recoverables on unpaid losses		(73,807	)		(61,101	)		(70,807	)		(82,651	)
Net reserves - beginning of period		102,019			84,261			103,805			82,888
Add: incurred losses and LAE, net of reinsurance:
Current period		12,481			18,797			23,462			33,723
Prior period		2,800			522			2,339			(691	)
Total net incurred losses and LAE		15,281			19,319			25,801			33,032
Deduct: loss and LAE payments, net of reinsurance:
Current period		7,206			7,454			10,068			9,441
Prior period		9,666			7,627			19,110			17,980
Total net loss and LAE payments		16,872			15,081			29,178			27,421
Net reserves - end of period		100,428			88,499			100,428			88,499
Plus: reinsurance recoverables on unpaid losses		74,358			56,505			74,358			56,505
Gross reserves - end of period	$	174,786		$	145,004		$	174,786		$	145,004

Net losses and LAE decreased by $4.0 million, or 20.9%, to $15.3 million during the second quarter of 2024, compared to $19.3 million for the same period in 2023. The $6.3 million decrease in current accident year losses during the second quarter of 2024, compared to the same period in 2023, was mostly due to a significant reduction in net earned premiums described above.

The Company’s incurred losses during the three months ended June 30, 2024 included prior-year adverse development of $2.8 million. Of the $2.8 million of adverse development experience during the second quarter of 2024, $2.1 million of adverse development was experienced in the Company's commercial lines of business, mostly related to emergence in the commercial liability lines in the Security Program in the 2021 and 2022 accident years. The remainder was attributed to $747,000 of adverse development occurring in the Company's personal lines of business, mostly related to a few high severity claims in the 2023 accident year.

The Company had less-than-expected loss emergence during the second quarter of 2023, and recognized $411,000 of favorable development in its personal lines of business for accident year 2022. The decrease in net losses and LAE was offset by $1.0 million and $4.5 million of current accident year losses in the Company's commercial lines and personal lines losses, respectively, which were a result of storm activity in the southwest during the second quarter of 2023.

As of June 30, 2024, the Company was $9.9 million into the $20.0 million layer provided by the adverse development cover of the LPT.

There was $2.2 million of adverse development relating to 2019 and prior accident years that was covered under the Loss Portfolio Transfer ("LPT") during the second quarter of 2023, resulting in no net development. As of June 30, 2023, the Company was $4.6 million into the $20.0 million layer provided by the adverse development cover of the LPT.