Note C - Loss and Loss Expense Reserves

Activity in the reserves for losses and loss expenses for the years ended December 31, 2019, 2018 and 2017 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

	2019			2018		2017
Reserves, gross of reinsurance recoverable, at the beginning of the year	$	865,339		$	680,274	$	576,330
Reinsurance recoverable on unpaid losses at the beginning of the year		375,935			308,143		251,563
Reserves at the beginning of the year		489,404			372,131		324,767

Provision for losses and loss expenses:
Claims occurring during the current year		349,018			329,078		228,303
Claims occurring during prior years		(550	)		16,786		19,215
Total incurred losses and loss expenses		348,468			345,864		247,518

Loss and loss expense payments:
Claims occurring during the current year		90,364			84,738		67,234
Claims occurring during prior years		157,508			143,853		132,920
Total paid		247,872			228,591		200,154
Reserves at the end of the year		590,000			489,404		372,131

Reinsurance recoverable on unpaid losses at the end of the year		398,305			375,935		308,143

Reserves, gross of reinsurance recoverable, at the end of the year	$	988,305		$	865,339	$	680,274

The table above shows that a reserve savings of $550 developed during 2019 in the settlement of claims occurring on or before December 31, 2018, compared to reserve deficiencies of $16,786 in 2018 and $19,215 in 2017. 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 $550 prior accident year savings that developed during 2019 related to favorable loss development in the Company's workers' compensation business, partially offset by unfavorable loss development in commercial automobile coverages. This 2019 savings compares to a deficiency of $16,786 for 2018 related to unfavorable loss development from commercial automobile coverages. This unfavorable loss development was the result of increased claim severity due to a more challenging litigation environment, as well as an unexpected increase in the time to settle claims leading to an unfavorable change in claim settlement patterns. The deficiency of $19,215 for 2017, also related to unfavorable loss development from commercial automobile coverages, particularly from severe transportation loss events that occurred primarily during the first six months of 2017 and higher than expected loss development for discontinued lines of business.

Loss reserves have been reduced by estimated salvage and subrogation recoverable of approximately $4,000 and $7,545 at December 31, 2019 and 2018, respectively.

The following is information about incurred and paid claims development as of December 31, 2019, 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

Accident Year																					As of December 31, 2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but- Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	20,644	$	20,111	$	19,400	$	19,300	$	18,849	$	18,344	$	19,195	$	19,541	$	19,819	$	19,781	$	1,294		4,226
2011				26,057		26,628		26,958		26,767		25,515		27,293		26,617		26,631		26,452		2,085		4,547
2012						23,965		25,544		24,887		24,485		25,616		27,020		26,775		25,508		2,528		4,484
2013								27,619		30,638		29,913		32,121		32,553		31,131		31,066		3,596		5,281
2014										36,768		36,968		34,009		33,427		31,031		31,579		4,217		5,410
2015												26,277		23,115		25,889		24,948		25,436		3,916		6,328
2016														35,240		29,757		29,317		30,060		4,745		6,078
2017																42,387		37,731		36,211		7,936		16,349
2018																		62,973		61,530		19,836		14,060
2019																				65,837		34,680		8,515
Total																			$	353,460	$	84,833

Accident Year	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																		2019
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
	2010		2011		2012		2013		2014		2015		2016		2017		2018
2010	$	3,974	$	9,134	$	11,963	$	13,845	$	14,966	$	15,835	$	16,590	$	16,789	$	17,062	$	17,340
2011				4,916		11,912		15,973		18,884		20,617		21,622		22,569		22,991		23,366
2012						4,597		11,004		14,834		17,415		18,946		20,276		21,157		21,636
2013								4,880		12,792		18,065		21,655		23,643		24,968		25,847
2014										5,328		13,665		19,075		22,387		23,968		24,714
2015												2,918		10,128		15,020		17,487		19,385
2016														5,784		13,377		18,461		21,304
2017																6,150		15,811		20,863
2018																		10,987		27,862
2019																				13,171
Total																			$	215,488
Outstanding liabilities prior to 2010, net of reinsurance																				16,437
Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	154,409

Commercial Liability

Accident Year																					As of December 31, 2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but- Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	31,124	$	22,161	$	21,899	$	19,139	$	20,300	$	19,764	$	19,377	$	19,081	$	19,985	$	19,994	$	113		2,403
2011				46,829		43,832		31,633		36,894		35,805		37,122		36,076		37,852		37,795		32		2,902
2012						49,743		54,269		49,743		51,367		48,708		51,475		51,648		51,962		266		3,131
2013								53,817		39,143		37,701		36,371		46,690		48,857		51,598		546		3,751
2014										49,971		52,254		52,483		52,964		64,372		70,841		1,268		3,323
2015												61,420		70,174		64,323		71,088		75,503		2,211		3,197
2016														61,638		68,974		77,362		79,015		4,913		3,737
2017																103,126		103,611		99,287		19,772		5,364
2018																		179,589		177,262		28,324		8,003
2019																				198,022		98,371		7,286
Total																			$	861,279	$	155,816

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	1,649	$	7,166	$	11,635	$	16,052	$	18,627	$	18,517	$	18,866	$	18,662	$	18,791	$	18,791
2011				1,809		11,350		23,615		30,795		33,255		34,009		35,561		36,400		37,263
2012						3,086		23,252		32,942		45,303		47,601		50,036		50,750		50,882
2013								5,167		15,772		25,270		34,481		44,865		46,084		49,522
2014										4,023		9,046		28,393		45,075		57,692		68,392
2015												10,923		27,582		49,267		63,133		71,697
2016														6,843		30,377		52,764		70,324
2017																11,415		46,529		58,173
2018																		18,689		66,575
2019																				19,311
Total																			$	510,930
Outstanding liabilities prior to 2010, net of reinsurance																				4,799
Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	355,148

Professional Liability Reinsurance Assumed (in runoff)

Accident Year																					As of December 31, 2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	2,196	$	4,277	$	7,827	$	7,946	$	9,733	$	10,740	$	11,689	$	11,893	$	11,677	$	11,544	$	35		N/A
2011				10,492		8,314		9,017		9,859		10,779		12,735		12,744		12,725		13,018		15		N/A
2012						10,041		9,276		5,569		10,157		14,605		16,555		14,949		16,013		335		N/A
2013								14,370		13,034		11,618		17,694		23,256		22,213		23,474		1,362		N/A
2014										12,675		8,825		7,259		9,837		12,749		10,721		1,251		N/A
2015												11,638		7,859		7,147		10,422		8,753		2,741		N/A
2016														6,368		2,482		1,522		2,993		471		N/A
2017																–		–		–		–		N/A
2018																		–		–		–		N/A
2019																				–		–		N/A
Total																			$	86,516	$	6,210

Accident Year	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31 (2010-2018 is Supplementary Information and Unaudited)
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	41	$	729	$	3,505	$	5,844	$	7,758	$	9,904	$	11,132	$	11,334	$	11,334	$	11,410
2011				50		637		2,061		4,983		8,104		10,404		11,679		12,280		12,404
2012						103		992		2,388		5,077		8,355		11,239		13,091		13,706
2013								123		1,135		5,088		10,988		14,779		18,229		19,201
2014										723		761		2,241		3,999		6,627		7,732
2015												10		390		1,899		3,207		3,964
2016														–		5		99		2,254
2017																–		–		–
2018																		–		–
2019																				–
Total																			$	70,671
Outstanding liabilities prior to 2010, net of reinsurance																				234
Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	16,079

Physical Damage ⁽¹⁾

Accident Year							As of December 31, 2019
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance							Total of Incurred-but-Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year
	For the Years Ended December 31 (2017-2018 is Supplementary Information and Unaudited)
	2017		2018		2019
2017	$	48,440	$	47,193	$	46,236		$	30		10,517
2018		–		53,726		50,122			234		11,108
2019				–		55,354			2,403		9,406
Total					$	151,712		$	2,667

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31 (2017-2018 is Supplementary Information and Unaudited)
Accident Year	2017		2018		2019
2017	$	39,517	$	46,554	$	46,184
2018		–		41,631		49,685
2019				–		44,197
Total					$	140,066
Outstanding liabilities prior to 2017, net of reinsurance						30
Liabilities for claims and claims adjustment expenses, net of reinsurance					$	11,676

⁽¹⁾	The majority of physical damage claims settle within a two-year period. The triangles above have been abbreviated to reflect the short-tail nature of this business.

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheet at December 31, 2019, 2018 and 2017 is as follows.

	2019		2018
Net outstanding liabilities
Commercial Liability	$	355,148	$	268,523
Workers' Compensation		154,409		131,996
Physical Damage		11,676		13,329
Professional Liability Assumed		16,079		21,390
Other short-duration insurance lines		30,318		33,716
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance		567,630		468,954

Reinsurance recoverable on unpaid claims
Commercial Liability		209,152		194,483
Workers' Compensation		182,908		172,869
Physical Damage		655		1,851
Other short-duration insurance lines		5,590		6,732
Reinsurance recoverable on unpaid losses at the end of the year		398,305		375,935

Unallocated claims adjustment expenses		22,370		20,450

Total gross liability for unpaid claims and claims adjustment expense	$	988,305	$	865,339

The following is supplementary information about average historical claims duration as of December 31, 2019:

	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		9.0	%	25.8	%	23.5	%	21.0	%	10.4	%	4.7	%	3.5	%	0.4	%	1.5	%	–
Workers' Compensation		17.5	%	26.4	%	16.1	%	10.3	%	6.2	%	4.0	%	3.4	%	1.5	%	1.4	%	1.4	%
Physical Damage		81.5	%	15.6	%	2.0	%	N/A		N/A		N/A		N/A		N/A		N/A		N/A
Professional Liability Assumed		1.5	%	4.1	%	13.4	%	26.6	%	18.1	%	15.6	%	8.8	%	3.3	%	4.4	%	0.7	%

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 connection with 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 exposure 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 commercial automobile risks, which are covered by regularly updated 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 proprietary databases to arrive at the reserve for incurred but not reported losses 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. Due to the number of reinsurance assumed treaties entered into (and the varying structures: both quota share and excess of loss) the Company deems it impractical to collect claim frequency information related to this business and this information has not been made available to the Company.