Note 3 - Property and Casualty Insurance Reserves

Property and casualty insurance reserve activity for the nine months ended September 30, 2017 and 2016 was:



	Nine Months Ended
(Dollars in Millions)	Sep 30, 2017		Sep 30, 2016
Property and Casualty Insurance Reserves:
Gross of Reinsurance and Indemnification at Beginning of Year	$	931.4	$	862.8
Less Reinsurance and Indemnification Recoverables at Beginning of Year	50.2		52.0
Property and Casualty Insurance Reserves - Net of Reinsurance and Indemnification at Beginning of Year	881.2		810.8
Incurred Losses and LAE Related to:
Current Year:
Continuing Operations	1,072.0		1,031.1
Prior Years:
Continuing Operations	19.7		(17.7		)
Discontinued Operations	—		(3.3		)
Total Incurred Losses and LAE Related to Prior Years	19.7		(21.0		)
Total Incurred Losses and LAE	1,091.7		1,010.1
Paid Losses and LAE Related to:
Current Year:
Continuing Operations	600.7		583.2
Prior Years:
Continuing Operations	443.6		360.8
Discontinued Operations	3.0		5.3
Total Paid Losses and LAE Related to Prior Years	446.6		366.1
Total Paid Losses and LAE	1,047.3		949.3
Property and Casualty Insurance Reserves - Net of Reinsurance and Indemnification at End of Period	925.6		871.6
Plus Reinsurance and Indemnification Recoverables at End of Period	42.9		49.1
Property and Casualty Insurance Reserves - Gross of Reinsurance and Indemnification at End of Period	$	968.5	$	920.7

Note 3 - Property and Casualty Insurance Reserves (continued)

Property and casualty insurance reserves are estimated based on historical experience patterns and current economic trends. Actual loss experience and loss trends are likely to differ from these historical experience patterns and economic conditions. Loss experience and loss trends emerge over several years from the dates of loss inception. The Company monitors such emerging loss trends on a quarterly basis. Changes in such estimates are included in the Condensed Consolidated Statements of Income in the period of change.

For the nine months ended September 30, 2017, the Company increased its property and casualty insurance reserves by $19.7 million to recognize adverse development of loss and LAE reserves from prior accident years. Personal lines insurance loss and LAE reserves developed adversely by $17.7 million, and commercial lines insurance loss and LAE reserves developed adversely by $2.0 million. Personal automobile insurance loss and LAE reserves developed adversely by $18.1 million due primarily to the emergence of loss patterns that were worse than expected for both physical damage and liability insurance for the 2016 accident year. Homeowners insurance loss and LAE reserves developed favorably by $0.1 million due primarily to favorable development on catastrophes of $3.2 million related to the 2016 and 2015 accident years, partially offset by the emergence of non-catastrophe loss patterns that were worse than expected for the 2016 accident year. Other personal lines loss and LAE reserves developed favorably by $0.3 million due primarily to the emergence of more favorable loss patterns than expected for the 2015, 2014 and 2013 accident years, partially offset by the emergence of worse than expected loss patterns for the 2016 accident year. Commercial lines insurance loss and LAE reserves developed adversely due primarily to the emergence of loss patterns that were worse than expected for the 2015 accident year.

For the nine months ended September 30, 2016, the Company reduced its property and casualty insurance reserves by $21.0 million to recognize favorable development of loss and LAE reserves from prior accident years. Personal lines insurance loss and LAE reserves developed favorably by $17.7 million, and commercial lines insurance loss and LAE reserves developed favorably by $3.3 million. The commercial lines insurance loss and LAE reserve development included no development from continuing operations and favorable development of $3.3 million from discontinued operations. Personal automobile insurance loss and LAE reserves developed adversely by $7.3 million due primarily to the emergence of loss patterns that were worse than expected for liability insurance for the 2015 accident year. Homeowners insurance loss and LAE reserves developed favorably by $18.1 million due primarily to $14.3 million of favorable development on catastrophes primarily for the 2015 and 2014 accident years. Other personal lines loss and LAE reserves developed favorably by $6.9 million due primarily to the emergence of more favorable loss patterns than expected for the 2015, 2014, 2013 and 2012 accident years.

The Company cannot predict whether loss and LAE reserves will develop favorably or adversely from the amounts reported in the Company’s Condensed Consolidated Financial Statements. The Company believes that any such development will not have a material effect on the Company’s consolidated shareholders’ equity, but could have a material effect on the Company’s consolidated financial results for a given period.

Subsequent Events

In early October 2017, a series of wildfires began burning in California. The Company expects that the catastrophe losses and loss adjustment expenses that it has incurred from these wildfires in the fourth quarter will be significant and have the potential to trigger recoveries under the Company’s catastrophe reinsurance program. The Company has not completed a full evaluation of its exposure to these wildfires, including potential reinsurance recoveries. Accordingly, the Company does not currently have an estimate of the ultimate loss related to these wildfires.