Note 7 - Unpaid Losses and Settlement Expenses

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Liability for Future Policy Benefits and Unpaid Claims Disclosure [Text Block]

7. UNPAID LOSSES AND SETTLEMENT EXPENSES

Loss Development Tables

The following tables represent cumulative incurred losses and settlement expenses, net of reinsurance, by accident year and cumulative paid loss and settlement expenses, net of reinsurance, by accident year, for the years ended December 31, 2013 to 2022, as well as total IBNR and the cumulative number of reported claims for the year ended December 31, 2021. The information about incurred and paid claims development for the years ended December 31, 2013 to 2021, is presented as unaudited required supplementary information. The property line of business has been disaggregated based on the shorter payout period in comparison to the workers compensation and liability lines of business.

PROPERTY LINES
Incurred loss and settlement expenses, net of reinsurance ($'s in thousands)																					As of December 31, 2022
	Year Ended December 31,
Accident Year		2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022	Total IBNR plus expected development on reported claims			Cumulative number of reported claims
2013	$	9,266	$	8,302	$	8,290	$	8,415	$	8,471	$	8,282	$	8,272	$	8,270	$	8,275	$	8,276	$	9			626
2014				8,865		7,586		7,798		7,883		7,817		7,785		7,784		7,792		7,794		—			740
2015						7,693		7,494		7,717		7,634		7,654		7,636		7,635		7,642		-			554
2016								8,941		7,981		8,372		8,381		8,404		8,327		8,387		6			576
2017										13,993		13,568		13,741		13,825		13,622		13,593		24			715
2018												11,454		11,114		10,966		11,030		11,073		44			725
2019														13,933		14,758		14,976		15,078		3			833
2020																13,997		15,056		15,195		431			937
2021																		12,968		14,799		312			746
2022																				16,568		(810	)		683
Total																			$	118,405

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022
2013	$	6,856	$	8,079	$	8,200	$	8,238	$	8,265	$	8,272	$	8,271	$	8,270	$	8,271	$	8,270
2014				6,243		7,631		7,746		7,796		7,795		7,795		7,801		7,803		7,805
2015						5,057		7,040		7,474		7,645		7,660		7,657		7,645		7,642
2016								6,157		7,624		8,236		8,356		8,437		8,465		8,384
2017										10,055		13,482		13,610		13,595		13,363		13,451
2018												8,487		11,009		11,025		11,062		11,117
2019														11,621		14,161		14,855		14,902
2020																10,620		14,485		15,540
2021																		11,220		14,712
2022																				12,898
Total																				114,721
Unpaid losses and settlement expense - years 2013 through 2022																				3,684
Unpaid losses and settlement expense - prior to 2013																				5
Unpaid loss and settlement expense, net of reinsurance																			$	3,689

*Presented as unaudited required supplementary information.

WORKERS' COMPENSATION AND LIABILITY LINES
Incurred loss and settlement expenses, net of reinsurance ($'s in thousands)																					As of December 31, 2022
	Year Ended December 31,
Accident Year	2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022		Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2013	$	12,584	$	13,559	$	13,169	$	12,960	$	13,696	$	13,858	$	14,076	$	14,081	$	14,144	$	14,180	$	11		1,145
2014				13,385		14,744		15,341		16,718		16,881		16,996		16,953		16,929		16,995		80		1,213
2015						16,596		13,876		13,440		13,862		14,486		14,714		15,182		15,210		91		1,095
2016								16,677		14,843		16,240		16,855		17,547		18,413		18,608		195		1,041
2017										15,808		15,803		15,842		15,977		17,067		18,049		292		1,042
2018												18,308		17,122		17,082		16,925		16,581		679		1,128
2019														19,630		19,200		19,575		19,364		1,817		1,094
2020																17,359		14,106		15,262		1,904		634
2021																		21,000		21,988		5,823		833
2022																				22,866		14,825		646
Total																			$	179,103

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year	2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022
2013	$	1,579	$	4,156	$	7,634	$	10,423	$	12,181	$	12,980	$	13,565	$	13,741	$	13,974	$	14,038
2014				1,539		4,087		9,515		13,602		15,232		15,912		16,374		16,401		16,749
2015						1,408		4,319		7,404		10,528		12,487		13,262		13,932		14,479
2016								1,497		5,488		8,189		12,205		14,206		16,649		17,618
2017										1,523		5,419		8,753		11,878		14,771		17,141
2018												1,964		5,656		9,312		12,419		14,688
2019														3,664		7,453		12,132		14,781
2020																2,435		4,882		8,026
2021																		3,520		7,825
2022																				3,614
Total																				128,959
Unpaid losses and settlement expense - years 2013 through 2022																				50,144
Unpaid losses and settlement expense - prior to 2013																				171
Unpaid loss and settlement expense, net of reinsurance																			$	50,315

*Presented as unaudited required supplementary information.

TOTAL LINES
Incurred loss and settlement expenses, net of reinsurance ($'s in thousands)																					As of December 31, 2022
	Year Ended December 31,
Accident Year	2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022		Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2013	$	21,850	$	21,861	$	21,459	$	21,375	$	22,167	$	22,140	$	22,348	$	22,351	$	22,419	$	22,456	$	20		1,771
2014				22,250		22,330		23,139		24,601		24,698		24,781		24,737		24,721		24,789		80		1,953
2015						24,289		21,370		21,157		21,496		22,140		22,350		22,817		22,852		91		1,649
2016								25,618		22,824		24,612		25,236		25,951		26,740		26,995		201		1,617
2017										29,801		29,371		29,583		29,802		30,689		31,642		316		1,757
2018												29,762		28,236		28,048		27,955		27,654		723		1,853
2019														33,563		33,958		34,551		34,442		1,820		1,927
2020																31,356		29,162		30,457		2,335		1,571
2021																		33,968		36,787		6,135		1,579
2022																				39,434		14,015		1,329
Total																			$	297,508

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year	2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022
2013	$	8,435	$	12,235	$	15,834	$	18,661	$	20,446	$	21,252	$	21,836	$	22,011	$	22,245	$	22,308
2014				7,782		11,718		17,261		21,398		23,027		23,707		24,175		24,204		24,554
2015						6,465		11,359		14,878		18,173		20,147		20,919		21,577		22,121
2016								7,654		13,112		16,425		20,561		22,643		25,114		26,002
2017										11,578		18,901		22,363		25,473		28,134		30,592
2018												10,451		16,665		20,337		23,481		25,805
2019														15,285		21,614		26,987		29,683
2020																13,055		19,367		23,566
2021																		14,740		22,537
2022																				16,512
Total																				243,680
Unpaid losses and settlement expense - years 2013 through 2022																				53,828
Unpaid losses and settlement expense - prior to 2013																				176
Unpaid loss and settlement expense, net of reinsurance																			$	54,004

*Presented as unaudited required supplementary information.

The following table reconciles the loss development information to the consolidated balance sheet for the year ended December 31, 2022, by reportable segment.

(In thousands)	December 31, 2022
Net unpaid losses and settlement expense
Property Lines	$	3,689
Workers' Compensation and Liability Lines		50,315
Total unpaid losses and settlement expense, net of reinsurance		54,004
Reinsurance recoverable on losses and settlement expense
Property Lines		1,302
Workers' Compensation and Liability Lines		12,308
Total reinsurance recoverable on unpaid losses and settlement expense		13,610
Total gross unpaid losses and LAE	$	67,614

Loss Duration Disclosure

The following table represents the average annual percentage payout of incurred losses by age, net of reinsurance and is presented as unaudited required supplementary information.

	Average annual percentage payout of incurred losses by age, net of reinsurance
	Year 1			Year 2			Year 3			Year 4			Year 5			Year 6			Year 7			Year 8			Year 9+
Property Lines		74.9	%		22.6	%		1.8	%		-0.2	%		0.2	%		0.8	%		-0.1	%		0.0	%		0.0	%
Liability Lines		12.7	%		20.9	%		22.6	%		20.1	%		10.6	%		5.7	%		2.3	%		1.7	%		3.4	%
Total Lines		37.6	%		21.7	%		14.3	%		11.5	%		6.3	%		3.7	%		1.4	%		1.1	%		2.3	%

The following table is a reconciliation of the Company’s unpaid losses and settlement expenses for the years 2022 and 2021.

(In thousands)	2022		2021
Unpaid losses and settlement expense - beginning of the period:
Gross	$	61,835	$	61,576
Less: Ceded		14,521		13,020
Net		47,314		48,556
Increase in incurred losses and settlement expense:
Current year		39,434		33,968
Prior years		5,099		732
		44,533		34,700
Deduct: Loss and settlement expense payments for claims incurred:
Current year		16,512		14,740
Prior years		21,331		21,203
Total paid		37,843		35,943
Net unpaid losses and settlement expense - end of the period		54,004		47,314
Plus: Reinsurance recoverable on unpaid losses		13,610		14,521
Gross unpaid losses and settlement expense - end of the period	$	67,614	$	61,835

Differences, from the initial reserve estimates, emerged as changes in the ultimate loss estimates were updated through the reserve analysis process. The recognition of the changes in initial reserve estimates occurred over time as claims were reported, initial case reserves were established, initial reserves were reviewed in light of additional information and ultimate payments were made on the collective set of claims incurred as of that evaluation date. The new information on the ultimate settlement value of claims is updated until all claims in a defined set are settled. As a small specialty insurer with a niche product portfolio, the Company’s experience will ordinarily exhibit fluctuations from period to period. While management attempts to identify and react to systematic changes in the loss environment, it must also consider the volume of experience directly available to the Company and interpret any particular period’s indications with a realistic technical understanding of the reliability of those observations.

A discussion of significant components of reserve development for the two most recent calendar years follows:

2022

For calendar year 2022, the Company experienced unfavorable development relative to prior years’ reserve estimates in both its property and liability lines of business. Businessowners Property and Liability increased a total of $3.5M, most of which arose from the 2021 accident year. In addition, Liquor Liability increased $1.3M, most of which arose from the 2020 and 2021 accident years. These adverse developments were partially offset by favorable development of $1.8M in Workers’ Compensation, most of which arose from the 2021 accident year.

2021

For calendar year 2021, the Company experienced unfavorable development relative to prior years’ reserve estimates in both its property and liability lines of business relating to Businessowners Property 2020 accident year claims and Businessowners Liability 2017 accident year claims, respectively. These adverse developments were largely offset by favorable development in Workers' Compensation 2020 accident year claims.