The liability for losses and loss adjustment expenses is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred but not reported.

The Company primarily writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net balance, beginning of period*	$	123,129		$	95,345		$	98,174		$	94,826
Incurred, net of reinsurance, related to:
Current period		50,543			25,177			116,839			70,914
Prior period		1,200			2,150			2,825			7,702
Total incurred, net of reinsurance		51,743			27,327			119,664			78,616
Paid, net of reinsurance, related to:
Current period		(21,175	)		(15,111	)		(36,988	)		(32,819	)
Prior period		(9,386	)		(12,763	)		(36,539	)		(45,825	)
Total paid, net of reinsurance		(30,561	)		(27,874	)		(73,527	)		(78,644	)
Net balance, end of period		144,311			94,798			144,311			94,798
Add: reinsurance recoverable before allowance for credit losses		75,034			143,123			75,034			143,123
Gross balance, end of period	$	219,345		$	237,921		$	219,345		$	237,921

*Net balance represents beginning-of-period liability for unpaid losses and loss adjustment expenses less beginning-of-period reinsurance recoverable for unpaid losses and loss adjustment expenses.

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three months ended September 30, 2020, the Company recognized losses related to prior periods of $1,200 primarily to increase the reserve for 2017, 2015 and prior loss years. For the nine months ended September 30, 2020, the Company recognized losses related to prior periods of $2,825 for unfavorable development for 2019 and prior loss years resulting from litigation. Estimated losses of $17,700, net of reinsurance, related to Hurricane Sally are included in the 2020 loss year.