Loss and Loss Adjustment Expense Reserves

3 Months Ended

Mar. 31, 2022

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 three months ended March 31, 2021 and 2022 (unaudited) (in thousands):

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Balance at January 1	$	73,438	$	57,093
Less reinsurance recoverable	—		(33,941)
Net balance at January 1	73,438		23,152
Incurred related to:
Current year	21,874		9,566
Prior years	96		2,664
Total incurred	21,970		12,230
Paid related to:
Current year	8,035		695
Prior years	14,865		(18,200)
Total paid	22,900		(17,505)
Net balance at end of period	72,508		52,887
Plus reinsurance recoverable	4,408		8,694
Balance at end of period	$	76,916	$	61,581

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 risk-based capital. 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 Company.

During the three months ended March 31, 2022 (unaudited), the Company experienced unfavorable development on losses and LAE from current and prior accident years as a result of higher severity from loss cost trends for the current year. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies. In 2021, 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.