Note 7 - Unpaid Losses and Settlement Expenses

12 Months Ended

Dec. 31, 2023

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, 2014 to 2023, as well as total IBNR and the cumulative number of reported claims for the year ended December 31, 2023. The information about incurred and paid claims development for the years ended December 31, 2014 to 2022, 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, 2023
	Year Ended December 31,
Accident Year		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023	Total IBNR plus expected development on reported claims			Cumulative number of reported claims
2014	$	8,865	$	7,586	$	7,798	$	7,883	$	7,817	$	7,785	$	7,784	$	7,792	$	7,794	$	7,794	$	—			740
2015				7,693		7,494		7,717		7,634		7,654		7,636		7,635		7,642		7,643		—			554
2016						8,941		7,981		8,372		8,381		8,404		8,327		8,387		8,392		(5	)		576
2017								13,993		13,568		13,741		13,825		13,622		13,593		13,457		(16	)		715
2018										11,454		11,114		10,966		11,030		11,073		11,108		(36	)		725
2019												13,933		14,758		14,976		15,078		15,145		(14	)		833
2020														13,997		15,056		15,195		16,005		(52	)		937
2021																12,968		14,799		15,392		(287	)		747
2022																		16,568		16,523		(298	)		746
2023																				16,433		593			641
Total																			$	127,891

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014	$	6,243	$	7,631	$	7,746	$	7,796	$	7,795	$	7,795	$	7,801	$	7,803	$	7,805	$	7,805
2015				5,057		7,040		7,474		7,645		7,660		7,657		7,645		7,642		7,643
2016						6,157		7,624		8,236		8,356		8,437		8,465		8,384		8,397
2017								10,055		13,482		13,610		13,595		13,363		13,451		13,469
2018										8,487		11,009		11,025		11,062		11,117		11,144
2019												11,621		14,161		14,855		14,902		14,974
2020														10,620		14,485		15,540		15,786
2021																11,220		14,712		15,603
2022																		12,898		16,534
2023																				13,934
Total																			$	125,291
Unpaid losses and settlement expense - years 2014 through 2023																				2,600
Unpaid losses and settlement expense - prior to 2014																				11
Unpaid loss and settlement expense, net of reinsurance																			$	2,611

*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, 2023
	Year Ended December 31,
Accident Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023		Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2014	$	13,385	$	14,744	$	15,341	$	16,719	$	16,881	$	16,996	$	16,954	$	16,930	$	16,995	$	17,064	$	78		1,213
2015				16,597		13,876		13,441		13,862		14,486		14,714		15,182		15,209		15,501		40		1,095
2016						16,678		14,843		16,240		16,855		17,546		18,412		18,608		18,807		61		1,042
2017								15,808		15,803		15,842		15,976		17,068		18,049		17,879		60		1,042
2018										18,308		17,122		17,082		16,925		16,581		16,455		214		1,132
2019												19,630		19,200		19,575		19,364		19,282		433		1,096
2020														17,359		14,107		15,262		15,661		889		640
2021																21,000		21,988		23,877		2,392		865
2022																		22,866		21,583		4,830		809
2023																				28,948		20,445		578
Total																			$	195,058

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014	$	1,540	$	4,088	$	9,515	$	13,603	$	15,232	$	15,912	$	16,374	$	16,401	$	16,750	$	16,762
2015				1,408		4,319		7,404		10,528		12,487		13,262		13,932		14,478		15,174
2016						1,497		5,488		8,189		12,205		14,206		16,649		17,618		18,461
2017								1,523		5,419		8,753		11,878		14,770		17,141		17,378
2018										1,964		5,656		9,312		12,419		14,687		15,734
2019												3,664		7,453		12,132		14,781		16,268
2020														2,435		4,882		8,026		12,422
2021																3,520		7,825		14,913
2022																		3,614		9,236
2023																				2,525
Total																				138,874
Unpaid losses and settlement expense - years 2014 through 2023																				56,184
Unpaid losses and settlement expense - prior to 2014																				306
Unpaid loss and settlement expense, net of reinsurance																			$	56,490

*Presented as unaudited required supplementary information.

TOTAL LINES
Incurred loss and settlement expenses, net of reinsurance ($'s in thousands)																					As of December 31, 2023
	Year Ended December 31,
Accident Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023		Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2014	$	22,250	$	22,330	$	23,139	$	24,601	$	24,698	$	24,781	$	24,737	$	24,721	$	24,789	$	24,858	$	78		1,953
2015				24,289		21,370		21,157		21,496		22,140		22,350		22,817		22,852		23,144		40		1,649
2016						25,618		22,824		24,612		25,236		25,951		26,740		26,995		27,199		56		1,618
2017								29,801		29,371		29,583		29,802		30,689		31,642		31,336		44		1,757
2018										29,762		28,236		28,048		27,955		27,654		27,563		178		1,857
2019												33,563		33,958		34,551		34,442		34,427		419		1,929
2020														31,356		29,162		30,457		31,666		837		1,577
2021																33,968		36,787		39,269		2,105		1,612
2022																		39,434		38,106		4,532		1,555
2023																				45,381		21,038		1,219
Total																			$	322,949

Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014	$	7,782	$	11,718	$	17,261	$	21,398	$	23,027	$	23,707	$	24,175	$	24,204	$	24,554	$	24,567
2015				6,465		11,359		14,878		18,173		20,147		20,919		21,577		22,121		22,817
2016						7,654		13,112		16,425		20,561		22,643		25,114		26,002		26,859
2017								11,578		18,901		22,363		25,473		28,134		30,592		30,847
2018										10,451		16,665		20,337		23,481		25,805		26,878
2019												15,285		21,614		26,987		29,683		31,243
2020														13,055		19,367		23,566		28,209
2021																14,740		22,537		30,516
2022																		16,512		25,770
2023																				16,459
Total																				264,165
Unpaid losses and settlement expense - years 2014 through 2023																				58,784
Unpaid losses and settlement expense - prior to 2014																				317
Unpaid loss and settlement expense, net of reinsurance																			$	59,101

*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, 2023, by reportable segment.

(In thousands)	December 31, 2023
Net unpaid losses and settlement expense
Property Lines	$	2,611
Workers' Compensation and Liability Lines		56,490
Total unpaid losses and settlement expense, net of reinsurance		59,101
Reinsurance recoverable on losses and settlement expense
Property Lines		1,755
Workers' Compensation and Liability Lines		11,064
Total reinsurance recoverable on unpaid losses and settlement expense		12,819
Total gross unpaid losses and LAE	$	71,920

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		75.9	%		21.9	%		1.8	%		(0.4)	%		0.3	%		0.7	%		(0.2)	%		0.0	%		(0.1)	%
Liability Lines		12.3	%		22.7	%		21.8	%		19.4	%		10.0	%		6.8	%		2.1	%		1.7	%		3.3	%
Total Lines		37.4	%		23.2	%		13.5	%		11.3	%		5.8	%		4.3	%		1.3	%		1.1	%		2.2	%

The following table is a reconciliation of the Company’s unpaid losses and settlement expenses for the years 2023 and 2022.

	For the Twelve-Months Ended
	December 31,
(In thousands)	2023		2022
Unpaid losses and settlement expense - beginning of the period:
Gross	$	67,614	$	61,835
Less: Ceded		13,610		14,521
Net		54,004		47,314
Increase in incurred losses and settlement expense:
Current year		45,381		39,434
Prior years		2,549		5,099
Total incurred		47,930		44,533
Deduct: Loss and settlement expense payments for claims incurred:
Current year		16,459		16,512
Prior years		26,374		21,331
Total paid		42,833		37,843
Net unpaid losses and settlement expense - end of the period		59,101		54,004
Plus: Reinsurance recoverable on unpaid losses net of CECL		12,737		13,610
Plus: CECL allowance for reinsurance recoverable on unpaid losses		82		—
Gross unpaid losses and settlement expense - end of the period	$	71,920	$	67,614

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:

2023

For calendar year 2023, the Company experienced unfavorable development relative to prior years’ reserve estimates in both its property and liability lines of business. Liquor Liability increased $3.1M, most of which was from the 2021 accident year. In addition, Businessowners Property and Liability increased a total of $1.7M, most of which arose from the 2020 accident year. These adverse developments were partially offset by favorable development of $2.2M in Workers’ Compensation, most of which arose from the 2022 accident year.

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 $3.3M, 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.