Unpaid Losses and Loss Adjustment Expense Reserves

3 Months Ended

Mar. 31, 2020

Unpaid Losses and Loss Adjustment Expenses

Unpaid Losses and Loss Adjustment Expense Reserves

The unpaid losses and loss adjustment expense (“LAE”) reserves are an estimate of the Company’s liability from incurred claims at the reporting period. The unpaid losses and loss adjustment expense reserves are the result of an ongoing analysis of recent loss development trends and emerging historical experience. Original estimates are increased or decreased as additional information becomes known regarding individual claims. In setting its reserves, the Company reviews its loss data to estimate expected loss development. Management believes that its use of standard actuarial methodology applied to its analyses of its historical experience provides a reasonable estimate of future losses. However, actual future losses may differ from the Company’s estimate, and future events beyond the control of management, such as changes in the law, judicial interpretations of the law and inflation, may favorably or unfavorably impact the ultimate settlement of the Company’s losses and LAE.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. In addition to inflation, the average severity of claims is affected by a number of factors that may vary by types and features of policies written. Future average severities are projected from historical trends, adjusted for implemented changes in underwriting standards and policy provisions, and general economic trends. These estimated trends are monitored and revised as necessary based on actual development.

The following tables present a reconciliation of beginning and ending balances for unpaid losses and LAE:


	Three Months Ended March 31, 2020
	Property and Casualty		Accident and Health		NGHC		Reciprocal Exchanges		Total
Gross balance at beginning of the period	$	2,528,754	$	151,874	$	2,680,628	$	205,786	$	2,886,414
Less: Reinsurance recoverable at beginning of the period	(1,016,368)		(11,266)		(1,027,634)		(84,174)		(1,111,808)
Net balance at beginning of the period	1,512,386		140,608		1,652,994		121,612		1,774,606
Incurred losses and LAE related to:
Current year	563,559		86,409		649,968		41,438		691,406
Prior year	4,471		(4,808)		(337)		929		592
Total incurred	568,030		81,601		649,631		42,367		691,998
Paid losses and LAE related to:
Current year	(204,279)		(25,820)		(230,099)		(18,169)		(248,268)
Prior year	(397,862)		(44,076)		(441,938)		(29,449)		(471,387)
Total paid	(602,141)		(69,896)		(672,037)		(47,618)		(719,655)
Net balance at end of the period	1,478,275		152,313		1,630,588		116,361		1,746,949
Plus: Reinsurance recoverable at end of the period	1,004,759		14,912		1,019,671		81,573		1,101,244
Gross balance at end of the period	$	2,483,034	$	167,225	$	2,650,259	$	197,934	$	2,848,193


	Three Months Ended March 31, 2019
	Property and Casualty		Accident and Health		NGHC		Reciprocal Exchanges		Total
Gross balance at beginning of the period	$	2,507,409	$	271,280	$	2,778,689	$	178,470	$	2,957,159
Less: Reinsurance recoverable at beginning of the period	(1,182,588)		(24,575)		(1,207,163)		(77,979)		(1,285,142)
Net balance at beginning of the period	1,324,821		246,705		1,571,526		100,491		1,672,017
Incurred losses and LAE related to:
Current year	530,549		95,601		626,150		39,973		666,123
Prior year	(5,514)		(10,852)		(16,366)		2,052		(14,314)
Total incurred	525,035		84,749		609,784		42,025		651,809
Paid losses and LAE related to:
Current year	(130,395)		(33,681)		(164,076)		(14,949)		(179,025)
Prior year	(422,560)		(53,310)		(475,870)		(21,478)		(497,348)
Total paid	(552,955)		(86,991)		(639,946)		(36,427)		(676,373)
Effect of foreign exchange rates	—		1,094		1,094		—		1,094
Net balance at end of the period	1,296,901		245,557		1,542,458		106,089		1,648,547
Plus: Reinsurance recoverable at end of the period	1,103,114		28,729		1,131,843		89,933		1,221,776
Gross balance at end of the period	$	2,400,015	$	274,286	$	2,674,301	$	196,022	$	2,870,323

Prior year loss development, net of reinsurance

Prior year development is based upon numerous estimates by line of business and accident year. No additional premiums or return premiums have been accrued as a result of the prior year effects.

2020. Loss and LAE for the three months ended March 31, 2020 included $592 of unfavorable development on prior accident year loss and LAE reserves. The $5,400 of unfavorable development in the property and casualty segment (including $929 of unfavorable development for the Reciprocal Exchanges) was driven by small business auto, while the $4,808 of favorable development in the accident and health segment was primarily driven by small group self-funded business.

2019. Loss and LAE for the three months ended March 31, 2019 included $14,314 of favorable development on prior accident year loss and LAE reserves. The $3,462 of favorable development in the property and casualty segment (including $2,052 of unfavorable development for the Reciprocal Exchanges) was driven by homeowners business, while the $10,852 of favorable development in the accident and health segment was primarily driven by small group self-funded business.