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, net of reinsurance recoverables, 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,
	2022			2021
Gross reserves - beginning of period	$	139,085		$	111,270
Less: reinsurance recoverables on unpaid losses		(40,344	)		(24,218	)
Net reserves - beginning of period		98,741			87,052
Add: incurred losses and LAE, net of reinsurance:
Current period		12,497			13,584
Prior period		5,521			5,778
Total net incurred losses and LAE		18,018			19,362
Deduct: loss and LAE payments, net of reinsurance:
Current period		2,512			3,180
Prior period		13,914			11,117
Total net loss and LAE payments		16,426			14,297
Net reserves - end of period		100,333			92,117
Plus: reinsurance recoverables on unpaid losses		40,605			26,559
Gross reserves - end of period	$	140,938		$	118,676

Net losses and LAE was $18.0 million for the three months ended March 31, 2022. Adverse development contributed $5.5 million to the total incurred losses in the first quarter of 2022, of which $1.5 million was related to 2017 and prior accident years, $1.3 million was related to the 2018 accident year, $1.3 million was related to the 2019 accident year, and $1.5 million was related to the 2020 accident year. In the first quarter of 2022, $5.7 million of the adverse development came from the commercial lines of business, mostly from liability lines, while our personal lines of business had $219,000 favorable development.

The Company’s incurred losses during the three months ended March 31, 2021 included prior-year adverse reserve development of $5.8 million. Of the $5.8 million of adverse development, $5.2 million was related to the Company’s commercial lines of business, while $612,000 was related to the Company’s personal lines of business. Of the $5.2 million of adverse development in the Company’s commercial lines of business, $2.7 million was experienced in the Company’s hospitality lines of business, while $2.5 million was experienced in the company’s small business lines of business.