Loss and Loss Adjustment Expense Reserves

3 Months Ended

Mar. 31, 2022

Loss and Loss Adjustment Expense Reserves

The following table summarizes the loss and LAE reserve activity of Ark’s insurance and reinsurance subsidiaries for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
Millions	2022		2021
Gross beginning balance	$	894.7	$	696.0
Less: beginning reinsurance recoverable on unpaid losses (1)	(428.9)		(433.4)
Net loss and loss adjustment expense reserves	465.8		262.6

Loss and loss adjustment expenses incurred relating to:
Current year losses	125.7		65.5
Prior year losses	(3.7)		.5
Net incurred losses and loss adjustment expenses	122.0		66.0



Loss and loss adjustment expenses paid relating to:
Current year losses	(0.6)		(5.2)
Prior year losses	(39.4)		(19.7)
Net loss and loss adjustment expenses	(40.0)		(24.9)

Change in TPC Providers’ participation	57.5		(2.2)
Foreign currency translation and other adjustments to loss and loss adjustment expense reserves	(1.7)		2.9

Net ending balance	603.6		304.4
Plus: ending reinsurance recoverable on unpaid losses (2)	396.0		447.5
Gross ending balance	$	999.6	$	751.9

(1) The beginning reinsurance recoverable on unpaid losses includes amounts attributable to TPC Providers of $276.8 and $319.2.

(2) The ending reinsurance recoverable on unpaid losses includes amounts attributable to TPC Providers of $207.3 and $331.0.

For the three months ended March 31, 2022, Ark experienced $3.7 million of net favorable prior year loss reserve development. Ark’s net favorable prior year loss reserve development was driven primarily by the property lines of business.

TPC Providers’ Participation

For the years of account prior to the Ark Transaction, a significant proportion of the Syndicates’ underwriting capital was provided by TPC Providers using whole account reinsurance contracts with Ark’s corporate member. The TPC Providers’ participation in the Syndicates for the 2020 open year of account is 42.8% of the total net result of the Syndicates. For the years of account subsequent to the Ark Transaction, Ark is no longer using TPC Providers to provide underwriting capital for the Syndicates.

A Reinsurance to Close (“RITC”) agreement is generally put in place after the third year of operations for a year of account such that the outstanding loss and LAE reserves, including future development thereon, are reinsured into the next year of account. As a result, and in combination with the changing participation provided by TPC Providers, Ark’s participation on outstanding loss and LAE reserves reinsured into the next year of account may change, perhaps significantly. During the first quarter of 2022, an RITC was executed such that the outstanding loss and LAE reserves for claims arising out of the 2019 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 58.3%, were reinsured into the 2020 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates is 42.8%. During the first quarter of 2021, an RITC was executed such that the outstanding loss and LAE reserves for claims arising out of the 2018 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 57.6%, were reinsured into the 2019 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 58.3%.

Municipal Bond Guarantee Insurance

HG Re and BAM do not have any outstanding loss and LAE reserves related to BAM’s municipal bond guarantee insurance business.