Loss and Loss Adjustment Expense Reserves

9 Months Ended

Sep. 30, 2021

Insurance [Abstract]

Loss and Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Reserves

The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE, net of reinsurance recoverable, for the nine months ended September 30, 2020 and 2021 (unaudited) (in thousands):

	Nine Months Ended September 30,
	2021		2020
	(unaudited)
Balance at January 1	$	57,093	$	52,222
Less reinsurance recoverable	(33,941)		(28,837)
Net balance at January 1	23,152		23,385
Incurred related to:
Current year	60,940		10,774
Prior years	1,332		1,214
Total incurred	62,272		11,988
Paid related to:
Current year	26,648		4,155
Prior years	(12,022)		11,422
Total paid	14,626		15,577
Net balance at end of period	70,798		19,796
Plus reinsurance recoverable	—		33,583
Balance at end of period	$	70,798	$	53,379

These reserve estimates are generally the result of ongoing analysis of recent loss development trends and emerging historical experience. Original estimates are increased or decreased as additional information becomes known regarding individual claims. In setting reserves, the Company reviewed its loss data to estimate expected loss development. Management believes that the use of sound actuarial methodology applied to its analyses of historical experience provides a reasonable estimate of future losses. However, actual future losses may differ from the Company’s estimates, and future events beyond the control of management, such as changes in law, judicial interpretations of law and inflation, may favorably or unfavorably impact the ultimate settlement of the Company’s losses and LAE.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends.

The estimation of unpaid losses and LAE reserves is based on existing factors at the date of estimation. Accordingly, future events may result in ultimate losses and LAE significantly varying from a reasonable provision as of the date of estimation. Unfavorable development of claims in future years could result in a significant negative impact on operations, stockholders’ surplus, and RBC. Such development, if not offset by other increases in stockholders’ surplus, could result in the insurance departments of the state of domicile taking regulatory actions against the Insurance Company.

During the nine months ended September 30, 2021 (unaudited), the Company experienced unfavorable development on losses and LAE from prior accident years as a result of higher severity for the injury coverages. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies. In 2020, the Company experienced unfavorable development on losses and LAE from prior accident years as a result of adverse LAE development. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies.