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, 2009 to 2018, as well as total IBNR and the cumulative number of reported claims for the year ended December 31, 2018. The information about incurred and paid claims development for the years ended December 31, 2009 to 2017, as well as total IBNR and the cumulative number of reported claims for the year ended December 31, 2018, 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 (in thousands)																					As of December 31, 2018
	Year Ended December 31,
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2009	$	4,560	$	4,099	$	3,889	$	4,406	$	4,562	$	4,409	$	4,352	$	4,370	$	4,339	$	4,339	$	1	479
2010				5,644		5,105		4,831		4,992		5,118		5,006		4,891		4,899		4,862		(12)	485
2011						7,427		6,708		6,621		6,752		6,733		6,645		6,631		6,632		8	655
2012								6,143		6,374		6,406		6,546		6,482		6,411		6,455		1	507
2013										9,266		8,302		8,290		8,415		8,471		8,282		(5)	482
2014												8,865		7,586		7,798		7,883		7,817		33	561
2015														7,693		7,494		7,717		7,634		(17)	427
2016																8,941		7,981		8,372		14	447
2017																		13,993		13,568		(250)	554
2018																				11,454		323	567
Total																				79,415


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2009	2010	2011	2012	2013	2014	2015	2016	2017		2018
2009	$	2,991	3,930	4,082	4,137	4,280	4,349	4,338	4,338	4,339	$	4,339
2010			3,166	4,584	4,719	4,740	4,791	4,818	4,873	4,874		4,874
2011				5,327	6,351	6,459	6,520	6,556	6,589	6,623		6,623
2012					4,949	6,401	6,369	6,362	6,326	6,472		6,469
2013						6,856	8,079	8,200	8,238	8,265		8,272
2014							6,243	7,631	7,746	7,796		7,795
2015								5,057	7,040	7,474		7,645
2016									6,157	7,624		8,236
2017										10,055		13,482
2018												8,487
Total												76,222
Unpaid losses and settlement expense - years 2009 through 2018												3,193
Unpaid losses and settlement expense - prior to 2009												(3)
Unpaid loss and settlement expense, net of reinsurance											$	3,190


WORKERS COMPENSATION AND LIABILITY LINES
Incurred loss and settlement expenses, net of reinsurance (in thousands)																					As of December 31, 2018
	Year Ended December 31,
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2009	$	11,945	$	10,845	$	11,549	$	11,807	$	12,119	$	12,098	$	11,824	$	11,895	$	11,951	$	11,957	$	15	1,259
2010				10,475		11,039		10,683		11,371		11,701		11,474		11,422		11,431		11,469		45	1,093
2011						12,375		12,126		11,894		12,039		12,098		12,027		11,819		11,723		8	1,356
2012								13,122		11,338		11,407		11,638		12,692		12,845		12,632		75	1,325
2013										12,584		13,559		13,169		12,960		13,696		13,858		262	1,314
2014												13,385		14,744		15,341		16,718		16,881		591	1,415
2015														16,596		13,876		13,440		13,862		1,109	1,245
2016																16,677		14,843		16,240		3,260	1,176
2017																		15,808		15,803		5,587	1,184
2018																				18,308		10,153	1,065
Total																				142,733


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2009	$	1,202	$	3,014	$	6,175	$	8,289	$	10,281	$	11,080	$	11,432	$	11,639	$	11,862	$	11,920
2010				1,248		3,395		5,865		8,462		10,022		10,733		11,067		11,194		11,345
2011						1,669		3,761		5,841		8,072		10,122		10,971		11,484		11,627
2012								1,180		3,021		5,589		8,327		10,913		11,753		12,156
2013										1,579		4,156		7,634		10,423		12,181		12,978
2014												1,539		4,087		9,515		13,602		15,232
2015														1,405		4,319		7,400		10,527
2016																1,490		5,485		8,190
2017																		1,523		5,419
2018																				1,963
Total																				101,357
Unpaid losses and settlement expense - years 2009 through 2018																				41,376
Unpaid losses and settlement expense - prior to 2009																				145
Unpaid loss and settlement expense, net of reinsurance																			$	41,521


TOTAL LINES
Incurred loss and settlement expenses, net of reinsurance (in thousands)																					As of December 31, 2018
	Year Ended December 31,
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2009	$	16,505	$	14,944	$	15,438	$	16,213	$	16,681	$	16,507	$	16,176	$	16,265	$	16,290	$	16,296	$	16	1,738
2010				16,119		16,144		15,514		16,363		16,819		16,480		16,313		16,330		16,331		33	1,578
2011						19,802		18,834		18,515		18,791		18,831		18,672		18,450		18,355		16	2,011
2012								19,265		17,712		17,813		18,184		19,174		19,256		19,087		76	1,832
2013										21,850		21,861		21,459		21,375		22,167		22,140		257	1,796
2014												22,250		22,330		23,139		24,601		24,698		624	1,976
2015														24,289		21,370		21,157		21,496		1,092	1,672
2016																25,618		22,824		24,612		3,274	1,623
2017																		29,801		29,371		5,337	1,738
2018																				29,762		10,476	1,632
Total																				222,148


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2009	2010	2011	2012	2013	2014	2015	2016	2017		2018
2009	$	4,193	6,944	10,257	12,426	14,561	15,429	15,770	15,977	16,201	$	16,259
2010			4,414	7,979	10,584	13,202	14,813	15,551	15,940	16,068		16,219
2011				6,996	10,112	12,300	14,592	16,678	17,560	18,107		18,250
2012					6,129	9,422	11,958	14,689	17,239	18,225		18,625
2013						8,435	12,235	15,834	18,661	20,446		21,250
2014							7,782	11,718	17,261	21,398		23,027
2015								6,462	11,359	14,874		18,172
2016									7,647	13,109		16,426
2017										11,578		18,901
2018												10,450
Total												177,579
Unpaid losses and settlement expense - years 2009 through 2018												44,569
Unpaid losses and settlement expense - prior to 2009												142
Unpaid loss and settlement expense, net of reinsurance											$	44,711

Loss Duration Disclosure

The following table represents the average annual percentage payout of incurred losses by age, net of reinsurance.


	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	69.9%	26.5%	2.7%	-2.1%	-0.5%	2.4%	0.9%	-0.3%	0.5%
Liability Lines	10.1%	20.6%	23.2%	20.4%	12.1%	5.8%	4.4%	1.6%	1.7%
Total Lines	32.1%	21.9%	15.2%	12.9%	7.8%	4.6%	3.2%	1.0%		1.3%

The following table is a reconciliation of the Company’s unpaid losses and settlement expenses for the years 2018 and 2017.


(In thousands)	2018		2017
Unpaid losses and settlement expense - beginning of the period:
Gross	$	51,074	$	52,817
Less: Ceded		10,030		12,115
Net		41,044		40,702
Increase (decrease) in incurred losses and settlement expense:
Current year		29,762		29,801
Prior years		1,500		(791)
Total incurred		31,262		29,010
Deduct: Loss and settlement expense payments for claims incurred:
Current year		10,450		11,577
Prior years		17,145		17,091
Total paid		27,595		28,668
Net unpaid losses and settlement expense - end of the period		44,711		41,044
Plus: Reinsurance recoverable on unpaid losses		6,736		10,030
Gross unpaid losses and settlement expense - end of the period	$	51,447	$	51,074



(In thousands)	2018		2017
Supplemental ceded unpaid losses and settlement expense at end of year disclosure:
Reinsurance balances recoverable on unpaid losses and settlement expenses,
net of allowances for uncollectible amounts of $0 in 2018 and $0 in 2017	$	6,736	$	10,030
Less : Reinsurance balances payable		—		—
Reinsurance recoverable on unpaid losses	$	6,736	$	10,030

Differences from the initial reserve estimates emerged as changes in the ultimate loss estimates as those 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, they 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:

2018

For calendar year 2018, the Company experienced adverse development relative to prior years’ reserve estimates in its casualty line of business primarily from the 2016 accident year. Adverse development in Business Liability was partially offset by favorable development in Liquor Liability and Workers’ Compensation.

2017

For calendar year 2017, the Company experienced favorable development relative to prior years’ reserve estimates in both its property and casualty lines of business primarily from the 2016 accident year. Workers’ Compensation and Business Property were the largest contributors to the favorable development, partially offset by adverse development in Business Liability.