Loss and Loss Adjustment Expense Reserves

3 Months Ended

Mar. 31, 2023

Loss and Loss Adjustment Expense Reserves

P&C Insurance and Reinsurance

The following table summarizes the loss and loss adjustment expense (“LAE”) reserve activity of the Ark/WM Outrigger segment for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
Millions		2023		2022
Gross beginning balance		$	1,296.5	$	894.7
Less: beginning reinsurance recoverable on unpaid losses (1)		(505.0)		(428.9)
Net loss and LAE reserves		791.5		465.8

Loss and LAE incurred relating to:
Current year losses		139.2		125.7
Prior year losses		8.6		(3.7)
Net incurred losses and LAE		147.8		122.0



Loss and LAE paid relating to:
Current year losses		(4.0)		(.6)
Prior year losses		(87.7)		(39.4)
Net paid loss and LAE		(91.7)		(40.0)

Change in TPC Providers’ participation (2)		145.4		57.5
Foreign currency translation and other adjustments to loss and LAE reserves		3.7		(1.7)

Net ending balance		996.7		603.6
Plus: ending reinsurance recoverable on unpaid losses (3)		348.9		396.0
Gross ending balance		$	1,345.6	$	999.6

(1) The beginning reinsurance recoverable on unpaid losses includes amounts attributable to TPC Providers of $145.4 and $276.8 as of December 31, 2022 and 2021.

(2) Amount represents the impact to net loss and LAE reserves due to a change in the TPC Providers’ participation related to the annual reinsurance to close process.

(3) The ending reinsurance recoverable on unpaid losses includes amounts attributable to TPC Providers of $0.0 and $207.3 as of March 31, 2023 and 2022.

For the three months ended March 31, 2023, the Ark/WM Outrigger segment recognized $8.6 million of net unfavorable prior year loss reserve development at Ark, driven primarily by Winter Storm Elliot. For the three months ended March 31, 2022, the Ark/WM Outrigger segment recognized $3.7 million of net favorable prior year loss reserve development at Ark, driven primarily by the property line of business.

Impact of Third-Party Capital

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. 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 2023, an RITC agreement was executed such that the outstanding loss and LAE reserves for claims arising out of the 2020 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 42.8%, were reinsured into the 2021 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 0.0%. During the first quarter of 2022, an RITC agreement 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 was 42.8%.

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.