Note C - Loss and Loss Expense Reserves

Activity in the reserves for losses and loss expenses is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

	2016		2015			2014
Reserves at the beginning of the year	$	301,753	$	295,583		$	288,088

Provision for losses and loss expenses:
Claims occurring during the current year		172,645		165,812			169,950
Claims occurring during prior years		13,836		(10,062	)		(10,354	)
Total incurred		186,481		155,750			159,596

Loss and loss expense payments:
Claims occurring during the current year		54,239		56,710			59,826
Claims occurring during prior years		109,228		92,870			92,275
Total paid		163,467		149,580			152,101
Reserves at the end of the year		324,767		301,753			295,583

Reinsurance recoverable on unpaid losses at the end of the year		251,563		211,843			210,519
Reserves, gross of reinsurance
recoverable, at the end of the year	$	576,330	$	513,596		$	506,102

The table above shows that a deficiency of $13,836 developed during 2016 in the settlement of claims occurring on or before December 31, 2015, compared to reserve savings for the two previous calendar years. The developments for each year are composed of individual claim savings and deficiencies which, in the aggregate have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.

The major components of the developments shown above are as follows for the years ended December 31:

	2016			2015				2014

Property and casualty insurance		$	5,441		$	(10,289	)		$	(5,423	)
Reinsurance			8,395			227				(4,931	)
Totals		$	13,836		$	(10,062	)		$	(10,354	)

Unfavorable loss development in the current year for property and casualty was influenced by severity in the Company's public transportation business. Loss reserves pertaining to the Company's reinsurance business were also strengthened during the year to reflect increased loss development. In addition to these developments, changes in the Company's net retention under reinsurance treaties will impact developments as more or less business is retained. These trends were considered in the establishment of the Company's reserves at December 31, 2016.

Loss reserves have been reduced by estimated salvage and subrogation recoverable of approximately $4,151 and $4,674 at December 31, 2016 and 2015, respectively.

The following is information about incurred claims development as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency and the total of incurred‐but‐not‐reported liabilities plus expected development on reported claims included within the net incurred claims amounts.

Workers' Compensation ($ in thousands)

																															As of December 31, 2016
																															Total of Incurred-
																															but-Not-Reported
																															Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																														Expected			Cumulative
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)																														Development on			Number of
Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			Reported Claims			Reported Claims
2007		$	9,050		$	11,930		$	13,298		$	12,023		$	11,239		$	11,790		$	12,175		$	12,637		$	12,340		$	12,399		$	173		2,828
2008						19,833			23,640			24,715			24,721			24,855			25,109			23,916			24,048			24,352			661		3,649
2009									17,270			20,931			21,447			21,261			21,268			20,767			20,641			20,817			1,060		3,784
2010												20,644			20,111			19,400			19,300			18,849			18,344			19,195			1,107		4,222
2011															26,057			26,628			26,958			26,767			25,515			27,293			2,784		4,543
2012																		23,965			25,544			24,887			24,485			25,616			3,136		4,477
2013																					27,619			30,638			29,913			32,121			5,170		5,255
2014																								36,768			36,968			34,009			6,908		5,371
2015																											26,277			23,115			6,462		6,219
2016																														35,240			20,695		5,520
																									Total				$	254,157		$	48,156

Commercial Liability ($ in thousands)

																															As of December 31, 2016
																															Total of Incurred-
																															but-Not-Reported
																															Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																														Expected			Cumulative
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)																														Development on			Number of
Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			Reported Claims			Reported Claims
2007		$	38,486		$	41,803		$	41,692		$	41,146		$	41,216		$	40,429		$	40,505		$	40,516		$	39,598		$	39,436		$	79		1,380
2008						34,693			28,591			27,311			25,511			23,989			24,892			24,902			23,480			23,482			23		948
2009									29,707			30,406			30,203			26,280			27,259			25,872			25,373			25,320			70		899
2010												31,124			22,161			21,899			19,139			20,300			19,764			19,377			40		2,398
2011															46,829			43,832			31,633			36,894			35,805			37,122			89		2,899
2012																		49,743			54,269			49,743			51,367			48,708			279		3,124
2013																					53,817			39,143			37,701			36,371			671		3,739
2014																								49,971			52,254			52,483			2,239		3,271
2015																											61,420			70,174			5,800		3,086
2016																														61,638		$	27,480		3,193
																									Total				$	414,111		$	36,770

Professional Liability Assumed ($ in thousands)

																									As of December 31, 2016
																									Total of Incurred-
																									but-Not-Reported
																									Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																								Expected			Cumulative
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)																								Development on			Number of
Year	2007	2008	2009	2010			2011			2012			2013			2014			2015			2016			Reported Claims			Reported Claims
2007
2008
2009
2010					$	2,196		$	4,277		$	7,827		$	7,946		$	9,733		$	10,740		$	11,689		$	270		N/A
2011									10,492			8,314			9,017			9,859			10,779			12,735			628		N/A
2012												10,041			9,276			5,569			10,157			14,605			2,653		N/A
2013															14,370			13,034			11,618			17,694			3,449		N/A
2014																		12,675			8,825			7,259			3,178		N/A
2015																					11,638			7,859			6,956		N/A
2016																								6,368		$	6,368		N/A
																			Total				$	78,210		$	23,502

The following is information about paid claims development as of December 31, 2016, net of reinsurance.

Workers' Compensation ($ in thousands)

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)
Year	2007		2008		2009		2010		2011		2012		2013		2014		2015			2016
2007	$	1,525	$	6,072	$	8,064	$	7,805	$	8,352	$	9,226	$	9,571	$	9,974		$	10,138		10,401
2008				6,046		13,919		17,320		18,943		20,055		20,839		21,306			21,883		22,199
2009						4,186		10,073		13,343		15,576		16,592		17,448			18,028		18,514
2010								3,974		9,134		11,963		13,845		14,966			15,835		16,590
2011										4,916		11,912		15,973		18,884			20,617		21,622
2012												4,597		11,004		14,834			17,415		18,946
2013														4,880		12,792			18,065		21,655
2014																5,328			13,665		19,075
2015																			2,918		10,128
2016																					5,784
																	Total			$	164,914
																	Outstanding liabilities prior to 2007 net of reinsurance				12,640
																	Liabilities for claims and claims adjustment expenses, net of reinsurance			$	101,883

Commercial Liability ($ in thousands)

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)
Year	2007		2008		2009		2010		2011		2012		2013		2014		2015			2016
2007	$	5,493	$	17,302	$	32,571	$	36,150	$	38,621	$	39,006	$	39,069	$	39,160		$	39,216	$	39,193
2008				2,612		8,942		15,733		21,220		21,396		23,169		23,354			23,444		23,500
2009						928		17,880		19,718		23,521		24,866		25,066			25,114		25,125
2010								1,649		7,166		11,635		16,052		18,627			18,517		18,866
2011										1,809		11,350		23,615		30,795			33,255		34,009
2012												3,086		23,252		32,942			45,303		47,601
2013														5,167		15,772			25,270		34,481
2014																4,023			9,046		28,393
2015																			10,923		27,582
2016																					6,843
																	Total			$	285,593
																	Outstanding liabilities prior to 2007 net of reinsurance				4,621
																	Liabilities for claims and claims adjustment expenses, net of reinsurance			$	133,139

Professional Liability Assumed ($ in thousands)

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited)
Year	2007	2008	2009	2010			2011			2012			2013			2014			2015			2016
2007
2008
2009
2010					$	41		$	729		$	3,505		$	5,844		$	7,758		$	9,904		$	11,132
2011									50			637			2,061			4,983			8,104			10,404
2012												103			992			2,388			5,077			8,355
2013															123			1,135			5,088			10,988
2014																		723			761			2,241
2015																					10			390
2016																								-
																			Total				$	43,510
																			Outstanding liabilities prior to 2007 net of reinsurance					-
																			Liabilities for claims and claims adjustment expenses, net of reinsurance				$	34,700

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.

Net outstanding liabilities
Commercial Liability	$	133,139
Workers' Compensation		101,883
Professional Liability Assumed		34,700
Other short-duration insurance lines		38,556
Liabilities for unpaid claims and claim adjustment
expenses, net of reinsurance		308,278

Reinsurance recoverable on unpaid claims
Commercial Liability		85,549
Workers' Compensation		153,847
Professional Liability Assumed		-
Other short-duration insurance lines		12,167
Reinsurance recoverable on unpaid losses at the
end of the year		251,563

Unallocated claims adjustment expenses		16,489

Total gross liability for unpaid claims and
claims adjustment expense	$	576,330

The following is supplementary information about average historical claims duration as of December 31, 2016.

	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	(Supplementary Information and Unaudited)
Years		1		2		3		4		5		6		7		8		9		10

Commercial Liability		9.7	%	31.3	%	26.7	%	20.0	%	6.2	%	2.2	%	0.7	%	0.2	%	0.2	%	0.1	%
Workers' Compensation		17.4	%	28.3	%	15.3	%	8.1	%	5.3	%	4.5	%	2.9	%	2.7	%	1.3	%	2.1	%
Professional Liability Assumed		1.7	%	4.6	%	17.4	%	23.7	%	21.1	%	18.2	%	10.5	%

Reserve methodologies for incurred but not reported losses

The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in consideration of its specialty business products. For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods. The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposures for its short-tail lines. A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported losses for its short-tail lines.

The Company also uses the loss development factor approach for its long-tail lines of business, including workers' compensation. A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for incurred but not reported losses. Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.

For the Company's fleet transportation risks, which are covered by regularly changing reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss. In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses. Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's extensive, proprietary databases to arrive at the reserve for losses incurred but not reported for the calendar/accident period under review. As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses. This process continues until all losses are settled for each period subject to this method.

Claim count methodology

The Company uses a claim event and coverage combination to estimate frequency. For example, a single claim event involving loss for physical damage of a vehicle and personal injury to a claimant would be considered two claims for purposes of the calculation of frequency. A single claim event causing personal injury to two claimants would be considered a single claim under the methodology.