Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2019

8.	Losses and Loss Adjustment Expenses

The following table provides a reconciliation of our beginning and ending unpaid loss and loss adjustment expense (“LAE”) reserve balances for the years ended December 31, 2019 and 2018.

	2019		2018
Balance at January 1	$	68,392,333	$	68,374,554
Less: Reinsurance recoverable on liability for losses and loss adjustment expenses		7,956,043		8,585,851
Add: Reinsurance recoverable on claims paid		5,791		1,196,573
Net liability at January 1		60,442,081		60,985,276
Losses and loss adjustment expenses incurred, net:
Current year		15,438,338		15,525,397
Prior years		136,271		4,057,821
Total incurred losses and loss adjustment Expenses		15,574,609		19,583,218
Less losses and loss adjustment expenses paid, net:
Current year		1,334,938		714,198
Prior years		18,588,912		19,412,215
Total losses and loss adjustment expenses paid		19,923,850		20,126,413
Net liability for losses and loss adjustment expenses, at December 31		56,092,840		60,442,081
Add: Reinsurance recoverable on liability for losses and loss adjustment expenses		7,850,409		7,956,043
Less: Reinsurance recoverable on claims paid		335,274		5,791
Liability for losses and loss adjustment expenses, at December 31	$	63,607,975	$	68,392,333

The liability for losses and LAE at December 31, 2019 and 2018 was $63,607,975 and $68,392,333, respectively. For the years ended December 31, 2019 and 2018, $18,588,912 and $19,412,215, respectively, has been paid for incurred claims attributable to insured events of prior years. Original estimates are increased or decreased, as additional information becomes known regarding individual claims. The Company recorded unfavorable development of $136,271 on its prior period reserves for the year ended December 31, 2019. The adverse development consisted of reserve strengthening in the 2018 report year for claims-made policies and, to a lesser extent, the 2012 and 2016 accident years for occurrence policies, but was largely offset by favorable development in the 2015 report year for claims-made policies and 2017 accident year for occurrence policies. For the year ended December 31, 2018, the Company experienced unfavorable development of $4,057,821 primarily related to significant reserve strengthening in the 2016 and 2017 accident years for both claims-made and occurrence policies.

Incurred and Paid Loss Development Information

The following information is presented about incurred and paid loss development at December 31, 2019, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities, plus expected development on reported claims included within the net incurred claims amounts.

The information about incurred and paid claims development for the years ended December 31, 2010 to December 31, 2018 is presented as supplementary information and is unaudited.

	Incurred Losses and Loss Adjustment Expenses, Net of Reinsurance (in thousands)
	(Unaudited)																				December 31, 2019
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		Total of Incurred- But-Not- Reported Liabilities Plus Expected Development on Reported Claims
2010	$	18,592	$	15,072	$	15,710	$	14,490	$	12,665	$	11,901	$	10,774	$	11,288	$	10,533	$	10,836		43
2011		-		19,524		18,783		18,591		21,175		21,079		21,030		21,329		20,586		21,028		55
2012		-		-		20,305		18,496		18,813		19,107		18,478		19,744		19,592		21,124		280
2013		-		-		-		17,753		16,879		15,219		13,224		11,447		12,022		12,349		231
2014		-		-		-		-		17,307		15,108		13,798		11,087		11,062		11,606		332
2015		-		-		-		-		-		19,999		17,785		16,494		16,373		15,830		900
2016		-		-		-		-		-		-		18,465		18,861		21,376		22,528		2,208
2017		-		-		-		-		-		-		-		16,588		19,143		18,262		4,167
2018		-		-		-		-		-		-		-		-		15,161		16,990		5,911
2019		-		-		-		-		-		-		-		-		-		15,438		10,492
																			$	165,991

	Cumulative Losses and Loss Adjustment Expenses Paid, Net of Reinsurance (in thousands)
	(Unaudited)																				December 31, 2019
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		Cumulative Number of Reported Claims
2010	$	464	$	1,721	$	4,162	$	6,312	$	6,883	$	7,774	$	8,328	$	9,621	$	9,921	$	10,166	160
2011		-		578		1,888		5,047		12,117		16,911		17,774		18,870		19,773		20,641	205
2012		-		-		1,002		2,621		5,637		9,772		14,376		17,365		17,805		19,672	196
2013		-		-		-		526		1,896		4,249		6,942		7,625		9,470		10,962	157
2014		-		-		-		-		417		1,676		4,069		6,448		7,780		9,717	132
2015		-		-		-		-				523		2,476		5,186		7,446		11,758	132
2016		-		-		-		-		-		-		944		3,818		9,691		13,320	181
2017		-		-		-		-		-		-		-		728		5,057		8,360	150
2018																		499		4,873	135
2019		-		-		-		-		-		-		-		-		-		1,335	94
																				110,804
All outstanding liabilities before 2010, net of reinsurance																				906
																			$	56,093

Reconciliation

The reconciliation for the net incurred and paid loss development tables to the liability for losses and LAE at December 31, 2019 in the accompanying balance sheet is as follows:

	2019
Net outstanding liabilities for losses and loss adjustment expenses:
Medical professional	$	56,092,840
Liabilities for losses and loss adjustment expenses, net of Reinsurance		56,092,840
Reinsurance recoverable on unpaid claims:
Medical professional		7,515,135
Total reinsurance recoverable on unpaid claims		7,515,135
Total gross liability for losses and loss adjustment expenses	$	63,607,975

Losses Duration Information

The following is supplemental information about average historical claims duration at December 31, 2019:

	Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
				(Unaudited)
Accident Year	Year 1			Year 2			Year 3			Year 4			Year 5			Year 6			Year 7			Year 8			Year 9			Year 10
Medical Professional		4.3	%		13.6	%		19.1	%		20.8	%		15.7	%		11.6	%		8.9	%		8.4	%		3.4	%		2.3	%

Positive Insurance Company uses a combination of the Actual versus Expected Method, Bornhuetter-Ferguson Method, Expected Loss Ratio Method, Frequency/Severity Method, and the Incurred Loss Development Method in order to estimate its liability for losses and LAE. Following the conversions and merger which were completed on March 27, 2019, the Company changed its approach by aggregating its data, previously under PPIX, PCA, and PIPE, and performing a single loss reserve analysis, as opposed to three separate loss reserve analyses. The Company used combined development patterns based on PPIX, PCA, and PIPE experience for claims-made development factors, but derived occurrence development factors strictly based on former PPIX experience. Tail policy development factors were derived from the occurrence factors. Management does not believe that the effects of these changes had a material impact on the Company’s estimates. The year-end loss reserve analysis also assumes that the Company will no longer utilize Andrews Outsource Solutions LLC to provide claims processing and risk management services following 2020, a measure which is expected to reduce the amount of LAE incurred in subsequent periods. If this action is not taken, then the Company’s reserves for loss adjustment expenses would increase as a result. There were no other significant changes in the methodologies and assumptions used to develop the liabilities for losses and LAE during the year ended December 31, 2019.