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, 2010 to 2019, 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, 2010 to 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, 2019
	Year Ended December 31,
Accident Year		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2010	$	5,644	$	5,105	$	4,831	$	4,992	$	5,118	$	5,006	$	4,891	$	4,899	$	4,862	$	4,860	$	14	674
2011				7,427		6,708		6,621		6,752		6,733		6,645		6,631		6,632		6,621		—	905
2012						6,143		6,374		6,406		6,546		6,482		6,411		6,455		6,167		(6)	672
2013								9,266		8,302		8,290		8,415		8,471		8,282		8,272		14	637
2014										8,865		7,586		7,798		7,883		7,817		7,785		(2)	743
2015												7,693		7,494		7,717		7,634		7,654		6	563
2016														8,941		7,981		8,372		8,381		(13)	582
2017																13,993		13,568		13,741		214	726
2018																		11,454		11,114		65	736
2019																				13,933		(125)	795
Total																			$	88,528


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2010*	2011*	2012*	2013*	2014*	2015*	2016*	2017*	2018*		2019
2010	$	3,166	4,584	4,719	4,740	4,791	4,818	4,873	4,874	4,874	$	4,874
2011			5,327	6,351	6,459	6,520	6,556	6,589	6,623	6,623		6,620
2012				4,949	6,401	6,369	6,362	6,326	6,472	6,469		6,176
2013					6,856	8,079	8,200	8,238	8,265	8,272		8,271
2014						6,243	7,631	7,746	7,796	7,795		7,795
2015							5,057	7,040	7,474	7,645		7,660
2016								6,157	7,624	8,236		8,356
2017									10,055	13,482		13,610
2018										8,487		11,009
2019												11,621
Total												85,992
Unpaid losses and settlement expense - years 2010 through 2019												2,536
Unpaid losses and settlement expense - prior to 2010												(10)
Unpaid loss and settlement expense, net of reinsurance											$	2,526

*Presented as unaudited required supplementary information.


WORKERS' COMPENSATION AND LIABILITY LINES
Incurred loss and settlement expenses, net of reinsurance (in thousands)																					As of December 31, 2019
	Year Ended December 31,
Accident Year		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2010	$	10,475	$	11,039	$	10,683	$	11,371	$	11,701	$	11,474	$	11,422	$	11,431	$	11,469	$	11,484	$	7	906
2011				12,375		12,126		11,894		12,039		12,098		12,027		11,819		11,723		11,720		7	1,106
2012						13,122		11,338		11,407		11,638		12,692		12,845		12,632		12,836		26	1,161
2013								12,584		13,559		13,169		12,960		13,696		13,858		14,076		76	1,161
2014										13,385		14,744		15,341		16,718		16,881		16,996		313	1,247
2015												16,596		13,876		13,440		13,862		14,486		538	1,113
2016														16,677		14,843		16,240		16,855		1,196	1,054
2017																15,808		15,803		15,842		2,484	1,043
2018																		18,308		17,122		5,804	1,115
2019																				19,630		10,813	912
Total																			$	151,047


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019
2010	$	1,248	$	3,395	$	5,865	$	8,462	$	10,022	$	10,733	$	11,067	$	11,194	$	11,345	$	11,429
2011				1,669		3,761		5,841		8,072		10,122		10,971		11,484		11,627		11,682
2012						1,180		3,021		5,589		8,327		10,913		11,753		12,156		12,572
2013								1,579		4,156		7,634		10,423		12,181		12,978		13,564
2014										1,539		4,087		9,515		13,602		15,232		15,912
2015												1,405		4,319		7,400		10,527		12,485
2016														1,490		5,485		8,190		12,202
2017																1,523		5,419		8,753
2018																		1,963		5,656
2019																				3,664
Total																				107,919
Unpaid losses and settlement expense - years 2010 through 2019																				43,128
Unpaid losses and settlement expense - prior to 2010																				148
Unpaid loss and settlement expense, net of reinsurance																			$	43,276

*Presented as unaudited required supplementary information.


TOTAL LINES
Incurred loss and settlement expenses, net of reinsurance (in thousands)																					As of December 31, 2019
	Year Ended December 31,
Accident Year		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019	Total IBNR plus expected development on reported claims		Cumulative number of reported claims
2010	$	16,119	$	16,144	$	15,514	$	16,363	$	16,819	$	16,480	$	16,313	$	16,330	$	16,331	$	16,344	$	21	1,580
2011				19,802		18,834		18,515		18,791		18,831		18,672		18,450		18,355		18,341		7	2,011
2012						19,265		17,712		17,813		18,184		19,174		19,256		19,087		19,003		20	1,833
2013								21,850		21,861		21,459		21,375		22,167		22,140		22,348		90	1,798
2014										22,250		22,330		23,139		24,601		24,698		24,781		311	1,990
2015												24,289		21,370		21,157		21,496		22,140		544	1,676
2016														25,618		22,824		24,612		25,236		1,183	1,636
2017																29,801		29,371		29,583		2,698	1,769
2018																		29,762		28,236		5,869	1,851
2019																				33,563		10,688	1,707
Total																			$	239,575


Cumulative paid loss and settlement expenses, net of reinsurance (in thousands)
	Year Ended December 31,
Accident Year		2010*	2011*	2012*	2013*	2014*	2015*	2016*	2017*	2018*		2019
2010	$	4,414	7,979	10,584	13,202	14,813	15,551	15,940	16,068	16,219	$	16,303
2011			6,996	10,112	12,300	14,592	16,678	17,560	18,107	18,250		18,302
2012				6,129	9,422	11,958	14,689	17,239	18,225	18,625		18,748
2013					8,435	12,235	15,834	18,661	20,446	21,250		21,835
2014						7,782	11,718	17,261	21,398	23,027		23,707
2015							6,462	11,359	14,874	18,172		20,145
2016								7,647	13,109	16,426		20,558
2017									11,578	18,901		22,363
2018										10,450		16,665
2019												15,285
Total												193,911
Unpaid losses and settlement expense - years 2010 through 2019												45,664
Unpaid losses and settlement expense - prior to 2010												138
Unpaid loss and settlement expense, net of reinsurance											$	45,802

*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, 2019, by reportable segement.


(In thousands)	December 31, 2019
Net unpaid losses and settlement expense
Property Lines	$	2,526
Workers' Compensation and Liability Lines		43,276
Total unpaid losses and settlement expense, net of reinsurance		45,802
Reinsurance recoverable on losses and settlement expense
Property Lines		3,238
Workers' Compensation and Liability Lines		7,798
Total reinsurance recoverable on unpaid losses and settlement expense		11,036
Total gross unpaid losses and LAE	$	56,838

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	71.7%	25.1%	1.7%	-0.5%	-0.2%	1.6%	0.7%	-0.1%	0.2%
Liability Lines	11.5%	19.9%	22.9%	20.5%	12.0%	5.9%	4.0%	1.7%	1.6%
Total Lines	34.4%	21.0%	14.9%	12.4%	7.7%	4.4%	2.8%	1.0%		1.2%

The following table is a reconciliation of the Company’s unpaid losses and settlement expenses for the years 2019 and 2018.


(In thousands)	2019		2018
Unpaid losses and settlement expense - beginning of the period:
Gross	$	51,447	$	51,074
Less: Ceded		6,736		10,030
Net		44,711		41,044
Increase in incurred losses and settlement expense:
Current year		33,564		29,762
Prior years		151		1,500
Total incurred		33,715		31,262
Deduct: Loss and settlement expense payments for claims incurred:
Current year		15,285		10,450
Prior years		17,339		17,145
Total paid		32,624		27,595
Net unpaid losses and settlement expense - end of the period		45,802		44,711
Plus: Reinsurance recoverable on unpaid losses		11,036		6,736
Gross unpaid losses and settlement expense - end of the period	$	56,838	$	51,447



(In thousands)	2019		2018
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 2019 and 2018	$	11,036	$	6,736
Less: Reinsurance balances payable		—		—
Reinsurance recoverable on unpaid losses	$	11,036	$	6,736

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:

2019

For calendar year 2019, the Company experienced adverse development relative to prior years’ reserve estimates in its liability line of business relating to Liquor Liability and Business Liability, primarily from the 2015 and 2016 accident years. This adverse development was largely offset by favorable development in Workers’ Compensation.

2018

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