Unpaid Loss and Loss Adjustment Expense

3 Months Ended

Mar. 31, 2022

The following table presents the activity in the liability for unpaid loss and loss adjustment expense ("LAE") for the three months ended March 31, 2022 and 2021 ($ in millions):


	Three Months Ended March 31,
	2022		2021
Unpaid loss and LAE at beginning of period	$	97.9	$	46.3
Less: Reinsurance recoverable at beginning of period (1)	72.7		36.3
Net unpaid loss and LAE at beginning of period	25.2		10.0
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year	24.8		16.7
Prior years	(0.4)		(0.2)
Total incurred	24.4		16.5
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year	10.6		8.3
Prior years	10.8		3.9
Total paid	21.4		12.2
Unpaid loss and LAE, net of reinsurance recoverable, at end of period	28.2		14.3
Reinsurance recoverable at end of period (1)	79.4		47.9
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period	$	107.6	$	62.2

(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. Other factors that can impact loss reserve development may also include trends in general economic conditions, including the effects of inflation. The Company had favorable development on net loss and LAE reserves of $0.4 million for the three months ended March 31, 2022, and favorable development on net loss and LAE reserves of $0.2 million for the three months ended March 31, 2021. No additional premiums or returned premiums have been accrued as a result of prior year effects.

For the three months ended March 31, 2021, current accident year incurred loss and LAE included $6.5 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 March 31, 2021 represents the Company's best estimates based upon information currently available.

Through June 30, 2021, the Company had proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” 75% of the premium to reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers paid 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").

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 catastrophe risk in the U.S that exceed $60 million in losses. Other non-proportional reinsurance contracts were renewed with terms similar to the expired contracts.