Liability for Unpaid Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2024

Liability for Unpaid Losses and Loss Adjustment Expenses

Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):


	Three Months Ended March 31,
	2024		2023
Balance at beginning of period	$	510,117	$	1,038,790
Less: Reinsurance recoverable	(183,435)		(798,680)
Net balance at beginning of period	326,682		240,110
Incurred related to:
Current year	240,187		202,836
Prior years	—		3,318
Total incurred	240,187		206,154
Paid related to:
Current year	96,333		67,783
Prior years	141,943		178,020
Total paid	238,276		245,803
Net balance at end of period	328,593		200,461
Plus: Reinsurance recoverable	101,036		669,946
Balance at end of period	$	429,629	$	870,407

During the three months ended March 31, 2024, the liability for unpaid losses and loss adjustment expenses, prior to reinsurance, decreased by $80.5 million from $510.1 million as of December 31, 2023 to $429.6 million as of March 31, 2024. The decrease was principally the result of the settlement of Hurricane Ian claims, other prior hurricanes and claims arising in the current and prior accident years.

Prior year development includes changes in previous estimates for unpaid Losses and LAE for all events occurring in prior years including hurricanes, other weather, and non-weather claims affected by pre-reform market conditions in Florida, and in 2023 also included changes in prior estimates resulting from the evaluation of claims in anticipation of the commutation of Hurricane Irma losses with the FHCF. In recent years, the Company has strengthened reserves as a result of adverse development due to Florida homeowners, tenants and condo owners coverages arising from non-weather and weather events. Similar to other carriers operating in the Florida homeowners marketplace, the Company has experienced deterioration in non-weather claims, such as roof claims and other water damage claims, and hurricane claims due to an unfavorable claims environment characterized by increases in policyholder demands and significant attorney representation. In 2023, adverse development was due to represented and litigated claims, and Florida weather claims for accident years 2017 and later. One of management’s objectives in 2023 and continuing into 2024 is to strengthen reserves on those prior period claims, which do not benefit from the new legislation signed in late 2022 that eliminated the one-way attorneys’ fee statute and assignments of benefits, established a one-year post-loss reporting period and made other reforms intended to improve the Florida market.

Losses and LAE experience over the past several years including both the three months ended March 31, 2024 and twelve months ended December 31, 2023, reflects an adverse litigation environment and other market conditions in Florida that the Florida Legislature has been attempting to address with the passage of legislation spanning several years. The most significant changes were made during a special session held in December 2022. Although the market remains early in the implementation phase of the new laws and their ultimate effects will not be known for some time, the Company considered and included the anticipated effects of the enacted legislation on post-reform claims in developing its ultimate loss projections and reserve estimates as of March 31, 2024.

In addition to the actions taken by the Florida legislature, management has been taking actions to improve losses and LAE experience through several means including operational initiatives designed to improve the efficiency and effectiveness of the claims cycle and reduce the impact of litigation; implementing pricing adjustments to reflect the loss experience as well as inflation and the increasing cost of reinsurance; reducing exposures that disproportionately contribute to elevated claims costs and expenses; and securing efficient reinsurance programs to protect against catastrophes.

During the three months ended March 31, 2024, there was adverse prior years’ gross reserve development of $93.0 thousand, and no unfavorable development net of that ceded. During the three months ended March 31, 2023, there was adverse prior years’ reserve development of $5.4 million gross less $2.1 million ceded resulting in $3.3 million net unfavorable development. The direct and net prior years’ reserve development for the quarter ended March 31, 2023 was principally due to gross reserve development for Hurricane Sally.