Loss And Loss Adjustment Expense Reserves

9 Months Ended

Sep. 30, 2020

Loss And Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Reserves

The following table presents the activity in loss and loss adjustment expense reserves:


	Nine Months Ended September 30,
	2020		2019

	(Amounts in thousands)
Gross reserves, beginning of period	$	1,921,255	$	1,829,412
Reinsurance recoverables on unpaid losses, beginning of period	(76,100)		(180,859)
Cumulative effect of adopting ASU 2016-13 for reinsurance recoverables on unpaid losses (1)	149		—
Reinsurance recoverables on unpaid losses, beginning of period, as adjusted	(75,951)		(180,859)
Net reserves, beginning of period, as adjusted	1,845,304		1,648,553
Incurred losses and loss adjustment expenses related to:
Current year	1,740,116		1,957,598
Prior years	25,511		10,323
Total incurred losses and loss adjustment expenses	1,765,627		1,967,921
Loss and loss adjustment expense payments related to:
Current year	937,373		1,149,659
Prior years	786,180		715,451
Total payments	1,723,553		1,865,110
Net reserves, end of period	1,887,378		1,751,364
Reinsurance recoverables on unpaid losses, end of period	54,608		103,847
Gross reserves, end of period	$	1,941,986	$	1,855,211

__________

(1) See Note 1 for additional information on adoption of ASU 2016-13.

The increase in the provision for insured events of prior years during the nine months ended September 30, 2020 of $25.5 million was primarily attributable to higher than estimated losses and loss adjustment expenses in the homeowners and commercial automobile lines of insurance business, partially offset by favorable development in the California private passenger automobile line of insurance business. The increase in the provision for insured events of prior years during the nine months ended September 30, 2019 of $10.3 million was primarily attributable to higher than estimated defense and cost containment expenses in the California automobile line of insurance business, partially offset by favorable development in certain of the Company's other lines of insurance business.

For the nine months ended September 30, 2020 and 2019, the Company recorded catastrophe losses net of reinsurance of approximately $43 million and $17 million, respectively. Catastrophe losses due to the events that occurred during the nine months ended September 30, 2020 totaled approximately $48 million, with no reinsurance benefits used for these losses, resulting primarily from wildfires and windstorms in California and extreme weather events outside of California. These losses were partially offset by favorable development of approximately $5 million on prior years' catastrophe losses. Catastrophe losses due to the events that occurred during the nine months ended September 30, 2019 totaled approximately $20 million, with no reinsurance benefits used for these losses, resulting primarily from winter storms in California, a hurricane in Texas, and tornadoes and wind and hail storms in the Midwest. These losses were partially offset by favorable development of approximately $3 million on prior years' catastrophe losses.

During the first quarter of 2019, the Company completed the sale of its subrogation rights related to the 2018 Camp and Woolsey Fires and the 2017 Thomas Fire (which was a component of the "2017 Southern California fires") to a third party. The Company’s reinsurers were the primary beneficiaries of this transaction, as they had absorbed most of the losses under the terms of the Treaty. The Company re-estimated its gross and net losses from the 2018 Camp and Woolsey Fires and the 2017 Southern California fires in conjunction with this sale, and its total gross losses from these catastrophes, after accounting for the assignment of subrogation rights and adjustments made to claims reserves as part of normal reserving procedures, were approximately $208 million, and its total net losses, after reinsurance benefits, were approximately $40 million at March 31, 2019. The Company benefited by approximately $10 million, before taxes, in the first quarter of 2019 from the sale of the subrogation rights, including adjustments made to the associated claims as a result of normal reserving procedures, reductions in the Company's retained portion of losses on the Camp and Woolsey Fires, and reduced reinstatement premiums recognized.