Note 4 - Property and Casualty Insurance Reserves

Property and casualty insurance reserve activity for the nine months ended September 30, 2018 and 2017 was:



	Nine Months Ended
(Dollars in Millions)	Sep 30, 2018			Sep 30, 2017
Property and Casualty Insurance Reserves:
Gross of Reinsurance and Indemnification at Beginning of Year	$	1,016.8		$	931.4
Less Reinsurance and Indemnification Recoverables at Beginning of Year	53.1			50.2
Property and Casualty Insurance Reserves - Net of Reinsurance and Indemnification at Beginning of Year	963.7			881.2
Property and Casualty Insurance Reserves Acquired, Net of Reinsurance	682.9			—
Incurred Losses and LAE Related to:
Current Year:
Continuing Operations	1,412.7			1,072.0
Prior Years:
Continuing Operations	(1.2		)	19.7
Discontinued Operations	(0.5		)	—
Total Incurred Losses and LAE Related to Prior Years	(1.7		)	19.7
Total Incurred Losses and LAE	1,411.0			1,091.7
Paid Losses and LAE Related to:
Current Year:
Continuing Operations	770.9			600.7
Prior Years:
Continuing Operations	533.1			443.6
Discontinued Operations	2.2			3.0
Total Paid Losses and LAE Related to Prior Years	535.3			446.6
Total Paid Losses and LAE	1,306.2			1,047.3
Property and Casualty Insurance Reserves - Net of Reinsurance and Indemnification at End of Period	1,751.4			925.6
Plus Reinsurance Recoverables at End of Period	67.7			42.9
Property and Casualty Insurance Reserves - Gross of Reinsurance and Indemnification at End of Period	$	1,819.1		$	968.5

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, 2018, the Company decreased its property and casualty insurance reserves by $1.7 million to recognize favorable development of loss and LAE reserves from prior accident years. Personal lines insurance loss and LAE reserves developed adversely by $0.1 million, and commercial lines insurance loss and LAE reserves developed favorably by $1.8 million. Personal automobile insurance loss and LAE reserves developed favorably by $0.5 million due primarily to the emergence of loss patterns that were more favorable than expected for both physical damage and liability insurance for the 2017 accident year, partially offset by the emergence of less favorable loss patterns than expected for both physical damage and liability insurance lines for the 2016 and prior accident years. Homeowners insurance loss and LAE reserves developed adversely by $3.6 million due primarily to the emergence of non-catastrophe loss patterns that were worse than expected for the 2016 and 2015 accident years, partially offset by favorable development on catastrophes primarily related to the 2017 accident year. Other personal lines loss and LAE reserves developed favorably by $2.9 million due primarily to the emergence of more favorable loss patterns than expected for the 2016 and 2015 accident years. Commercial lines insurance

Note 4 - Property and Casualty Insurance Reserves (continued)

loss and LAE reserves developed favorably due primarily to the emergence of more favorable loss patterns than expected for the 2015 and 2014 accident years.

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 the 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.

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.