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 September 30,						Nine months ended September 30,
	2024			2023			2024			2023
Gross reserves - beginning of period	$	174,786		$	145,004		$	174,612		$	165,539
Less: reinsurance recoverables on unpaid losses		(74,358	)		(56,505	)		(70,807	)		(82,651	)
Net reserves - beginning of period		100,428			88,499			103,805			82,888
Add: incurred losses and LAE, net of reinsurance:
Current period		7,284			17,281			30,747			51,004
Prior period		7,868			3,630			10,206			2,939
Total net incurred losses and LAE		15,152			20,911			40,953			53,943
Deduct: loss and LAE payments, net of reinsurance:
Current period		8,481			9,194			18,549			18,635
Prior period		12,054			7,768			31,164			25,748
Total net loss and LAE payments		20,535			16,962			49,713			44,383
Net reserves - end of period		95,045			92,448			95,045			92,448
Plus: reinsurance recoverables on unpaid losses		65,860			46,766			65,860			46,766
Gross reserves - end of period	$	160,905		$	139,214		$	160,905		$	139,214

Net losses and LAE decreased by $5.8 million, or 27.5%, to $15.2 million during the third quarter of 2024, compared to $20.9 million for the same period in 2023. The $10.0 million decrease in current accident year losses during the third 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 September 30, 2024 included prior-year adverse development of $7.9 million. The $7.9 million of adverse development related to emergence in the commercial liability lines of business. The adverse development was predominantly generated in the Security Guard program, which we ceased writing in September 2023, and ceded all unearned premiums on September 30, 2023. We experienced higher-than-expect open case loss emergence due to higher loss severity. To mitigate the impact of potential further adverse development on case reserves, we increased our expected loss ratio inputs for calculating IBNR in multiple accident years for this program which increased our ultimate loss estimates in accident years 2020 through 2023, by $10.9 million. The adverse development in this program was partially offset by favorable development in other programs.

The Company's incurred losses during the three and nine months ended September 30, 2023 included prior-year adverse reserve development of $3.6 million and $2.9 million, respectively. For the third quarter, the Company recognized $4.0 million of reserve development in the commercial liability lines of business relating to accident years 2020 through 2022, offset by

$414,000 of favorable development in the personal lines segment. For the nine months ended September 30, 2023, the Company recognized $4.1 million of adverse development in the commercial liability lines of business, related to accident years 2020 through 2022, offset by $1.2 million of favorable development in the personal lines segment.

As of September 30, 2024, the Company was $12.2 million into the $20.0 million layer provided by the adverse development cover of the LPT.