Reserve for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2021

Reserve for Losses and Loss Adjustment Expenses

Reserve for Losses and Loss Adjustment Expenses

4. Reserve for Losses and Loss Adjustment Expenses

The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses (“LAE”):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
		(in thousands)				(in thousands)
Reserve for losses and LAE net of reinsurance recoverables at beginning of period	$	23,633	$	7,087	$	34,470	$	3,869
Add: Incurred losses and LAE, net of reinsurance, related to:
Current year		28,286		40,803		34,202		46,867
Prior years		189		257		(2,914)		34
Total incurred		28,475		41,060		31,288		46,901
Deduct: Loss and LAE payments, net of reinsurance, related to:
Current year		2,787		8,232		3,407		9,754
Prior years		2,678		375		15,708		1,476
Total payments		5,465		8,607		19,115		11,230
Reserve for losses and LAE net of reinsurance recoverables at end of period		46,643		39,540		46,643		39,540
Add: Reinsurance recoverables on unpaid losses and LAE at end of period		129,044		92,537		129,044		92,537
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period	$	175,687	$	132,077	$	175,687	$	132,077

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.

The Company experienced adverse prior year development of $0.2 million during the three months ended September 30, 2021 and adverse prior year development of $0.3 million in the three months ended September 30, 2020. Adverse prior year development during the three months ended September 30, 2021 was primarily due to higher than anticipated severity of attritional losses, partially offset by favorable development on catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business. Adverse prior year development in the three months ended September 30, 2020 was primarily due to reported activity in the assumed reinsurance line of business, partially offset by favorable development in the Specialty Homeowners line of business.

The Company experienced favorable prior year development of $2.9 million during the nine months ended September 30, 2021 and adverse development of $0.03 million in the nine months ended September 30, 2020. Favorable prior year development during the nine months ended September 30, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business. Adverse development in the nine months ended September 30, 2020 was primarily due to reported activity in the assumed reinsurance line of business, partially offset by favorable development in the Specialty Homeowners line of business.