Unpaid Loss and Loss Adjustment Expense

6 Months Ended

Jun. 30, 2021

The following table presents the activity in the liability for unpaid loss and loss adjustment expense ("LAE") for the six months ended June 30, 2021 and 2020 ($ in millions):


	Six Months Ended June 30,
	2021		2020
Unpaid loss and LAE at beginning of period	$	46.3	$	28.2
Less: Reinsurance recoverable at beginning of period (1)	36.3		18.5
Net unpaid loss and LAE at beginning of period	10.0		9.7
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year	29.9		33.5
Prior years	(0.4)		5.2
Total incurred	29.5		38.7
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year	19.0		24.4
Prior years	5.5		13.2
Total paid	24.5		37.6
Unpaid loss and LAE, net of reinsurance recoverable, at end of period	15.0		10.8
Reinsurance recoverable at end of period (1)	49.7		24.5
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period	$	64.7	$	35.3

(1) Reinsurance recoverable in this table includes only ceded unpaid loss and LAE

Unpaid loss and LAE includes anticipated salvage and subrogation recoverable.

Considerable variability is inherent in the estimate of the reserve for losses and LAE. Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders' equity. Additional variability exists due to accident year allocations of ceded amounts in accordance with reinsurance agreements, which is not expected to result in any changes to the ultimate liability. The Company had unfavorable development on net loss and LAE reserves of $0.4 million for the six months ended June 30, 2021, and favorable development on net loss and LAE reserves of $5.2 million for the six months ended June 30, 2020. No additional premiums or returned premiums have been accrued as a result of prior year effects.

For the six months ended June 30, 2021, current accident year incurred loss and LAE included $6.2 million of net incurred loss and LAE from the severe winter storm that affected our customers in the states of Texas and Oklahoma. The net incurred loss and LAE from Winter Storm Uri as of June 30, 2021 represents the Company's best estimates based upon information currently available.

Through June 30, 2021, the Company has proportional reinsurance contracts which cover all of the Company's products and geographies, and transfer, or “cede,” 75% of the premium to reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers pay a ceding commission of 25% for every dollar ceded, in addition to funding all of the corresponding claims, or 75% of all claims. The Company opted to manage the remaining 25% of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts"). The majority of the Proportional Reinsurance Contracts run for a three-year term, expiring June 30, 2023, while the remainder has a one-year term, expiring June 30, 2021. The Company's Non-Proportional Reinsurance Contracts are likewise effective as of July 1, 2020, and have a one-year term.

A portion of the Company’s proportional reinsurance program expired on June 30, 2021. The Company renewed the majority of the expiring reinsurance contracts at terms that are very similar to the prior agreements. As the business continues to grow and diversify, and with stability in our insurance results, the Company decreased the overall share of proportional reinsurance from 75% of premium to 70%. In addition, the Company purchased a new reinsurance program to protect against natural catastrophe risk in the U.S. Other non-proportional reinsurance contracts were renewed with terms similar to the expiring contracts.