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Liability for Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2020

Liability for Unpaid Losses and Loss Adjustment Expenses

8.Liability for Unpaid Losses and Loss Adjustment Expenses

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

	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2020			2019			2020			2019
Balance at beginning of period	$	651,073		$	608,773		$	630,181		$	680,031
Less: Ceded reinsurance receivables		87,221			59,834			76,273			109,342
Net balance at beginning of period		563,852			548,939			553,908			570,689
Incurred losses and loss adjustment expenses related to:
Current year		108,859			80,533			273,709			225,022
Prior years		(11,711	)		(6,950	)		(31,617	)		(23,043	)
Total incurred losses and loss adjustment expenses		97,148			73,583			242,092			201,979
Paid losses and loss adjustment expenses related to:
Current year		60,114			47,290			119,541			102,806
Prior years		29,612			20,789			105,185			115,419
Total paid losses and loss adjustment expenses		89,726			68,079			224,726			218,225
Net balance at end of period		571,274			554,443			571,274			554,443
Plus: Ceded reinsurance receivables		98,656			78,844			98,656			78,844
Balance at end of period	$	669,930		$	633,287		$	669,930		$	633,287

When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.

During the third quarter of 2020, the Company reduced its prior accident year loss reserves by $11.7 million, which consisted of a $3.5 million decrease related to Commercial Specialty, a $2.0 million decrease related to Specialty Property, a $1.3 million decrease related to Farm, Ranch, & Stable, and a $4.9 million decrease related to Reinsurance Operations.

The $3.5 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

General Liability: A $2.5 million reduction in aggregate with $1.9 million of favorable development in the construction defect reserve category and $0.5 million of favorable development in the other general liability reserve categories. The reduction in the construction defect reserve category recognizes lower than expected claims frequency and severity in the 2005 through 2009 and 2012 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the main driver of the favorable development primarily in the 1995, 2005, 2007 through 2012 and 2015 accident years, partially offset by increases in the 2016 through 2018 accident years.

•

Property: An increase of $0.1 million in the 2019 accident year was partially offset by decreases in the 2017 and 2018 accident years.

•

Professional: A $1.1 million decrease primarily in the 2006 through 2010 accident years reflects lower than expected claims severity.

The $2.0 million decrease of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

•

General Liability: A $0.2 million reduction primarily recognizes lower than expected claims severity in the 2017 and 2019 accident years.

•

Property: A $1.8 million decrease primarily in the 2017 accident year recognizes a reduction in the catastrophe reserve categories for subrogation recoveries from the California wildfires in the 2017 accident year.

The $1.3 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

•

Property: A $1.3 million decrease mainly recognizes a reduction in the catastrophe reserve category in the 2017 accident year for subrogation recoveries from the California wildfires and lower than anticipated claims severity in the 2018 accident year, partially offset by an increase in the 2019 accident year for the catastrophe reserve category.

The $4.9 million decrease in prior accident year loss reserves related to Reinsurance Operations were based on a review of the experience reported from cedants. There was a $3.2 million decrease in the property lines primarily in the 2009 through 2012 and 2014 through 2018 accident years, partially offset by an increase in the 2019 accident year. In addition, there was a reduction of $1.7 million in the professional lines in the 2014 and 2015 accident years.

During the third quarter of 2019, the Company reduced its prior accident year loss reserves by $7.0 million, which consisted of a $5.2 million decrease related to Commercial Specialty, $1.3 million decrease related to Specialty Property, $1.2 million decrease related to Farm, Ranch, & Stable, and a $0.7 million increase related to Reinsurance Operations.

The $5.2 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

General Liability: A $4.4 million reduction in aggregate with $0.5 million of favorable development in the construction defect reserve category and $3.9 million of favorable development in the other general liability reserve categories. The decreases in the construction defect reserve category recognize lower than expected claims severity primarily in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the 2010 and 2016 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014 accident years, partially offset by increases in the 2016 and 2017 accident years.

•

Commercial Auto Liability: A $0.6 million decrease in total, primarily in the 2012, 2013 and 2016 accident years. The decreases recognize lower than anticipated claims severity.

The $1.3 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

•

General Liability: A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015, 2016 and 2018 accident years, partially offset by increases in the 2010, 2014 and 2017 accident years, recognizing higher than expected claims severity.

•

Property: A $0.9 million reduction recognizes an additional $0.6 million decrease in the catastrophe reserve category for anticipated subrogation recoveries from the California Camp wildfire loss in the 2018 accident year and a $0.2 million decrease in the 2017 accident year, mainly recognizing lower than expected claims severity.

The $1.2 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

•

Property: A $1.1 million decrease primarily reflects ceded recoveries from a second accident quarter catastrophe in the 2018 accident year.

The $0.7 million increase in prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Property: A $0.7 million increase primarily in the 2012 and 2015 through 2017 accident years, partially offset by decreases in the 2011, 2014 and 2018 accident years. The accident year changes were based on a review of the experience reported from cedants.

During the first nine months of 2020, the Company reduced its prior accident year loss reserves by $31.6 million, which consisted of a $17.8 million decrease related to Commercial Specialty, a $6.6 million decrease related to Specialty Property, a $2.1 million decrease related to Farm, Ranch, & Stable, and a $5.1 million decrease related to Reinsurance Operations.

The $17.8 million decrease in prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

General Liability: A $20.5 million reduction in aggregate with $6.6 million of favorable development in the construction defect reserve category and $13.9 million of favorable development in the other general liability reserve categories. The reduction in the construction defect reserve category primarily recognizes lower than expected claims frequency and severity in the 2005 through 2009, 2012, 2015 and 2017 accident years, slightly offset by an increase in the 2016 accident year. For the other general liability reserve categories, lower than anticipated claims severity was the main driver of the favorable development primarily in the 2005 through 2015 accident years, partially offset by increases in the 2016 through 2019 accident years.

•

Professional: A $1.9 million decrease mainly in the 2007 through 2010 and 2019 accident years recognizes lower than expected claims severity.

•

Commercial Auto Liability: A $1.0 million reduction primarily in the 2010 and 2012 through 2016 accident years recognizes lower than anticipated claims severity.

•

Workers Compensation: A $0.2 million decrease primarily in loss adjustment expense reserves in the 2012 and accident years prior to 2005.

•

Property: An increase of $5.8 million primarily recognizes higher than expected claims severity mainly in the 2017 through 2019 accident years. The bulk of the increase was in the 2018 accident year which reflects a higher estimated ultimate for Hurricane Michael. The increase in ultimate resulted from receiving additional information in the second quarter for a Property Brokerage claim.

The $6.6 million decrease in prior accident year loss reserves related to Specialty Property primarily consisted of the following:

•

General Liability: A $2.0 million decrease primarily recognizes lower than expected claims severity mainly in the 2015 through 2019 accident years.

•

Property: A $4.6 million decrease reflects a $1.8 million reduction in the third quarter primarily in the 2017 accident year which recognizes a decrease in the catastrophe reserve categories for subrogation recoveries from the California wildfires. A year-to-date reduction through June totaled $2.8 million mainly reflected lower than anticipated claims severity in the 2015 through 2018 accident years, partially offset by an increase in the 2019 accident year due to higher than expected claims severity.

The $2.1 million decrease in prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

•

Property: A $2.0 million decrease mainly reflects lower than anticipated claims severity in the 2016 through 2018 accident years and a reduction in the catastrophe reserve category in the 2017 accident year for subrogation recoveries from the California wildfires, partially offset by an increase in the 2019 accident year.

•

General Liability: A $0.1 million decrease primarily recognizes lower than expected claims severity mainly in the 2015 through 2016 and 2018 through 2019 accident years, mostly offset by an increase in the 2013 accident year due to higher than anticipated claims severity.

The $5.1 million decrease in prior accident year loss reserves related to Reinsurance Operations were based on a review of the experience reported from cedants. There was a $3.4 million decrease in the property lines primarily in the 2009 through 2010 and 2012 through 2017 accident years, partially offset by an increase in the 2019 accident year. In addition, there was a reduction of $1.7 million in the professional lines in the 2014 and 2015 accident years.

During the first nine months of 2019, the Company reduced its prior accident year loss reserves by $23.0 million, which consisted of a $12.1 million decrease related to Commercial Specialty, $10.5 million decrease related to Specialty Property, $4.0 million decrease related to Farm, Ranch, & Stable, and a $3.5 million increase related to Reinsurance Operations.

The $12.1 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

General Liability: A $9.6 million reduction in aggregate with $1.0 million of favorable development in the construction defect reserve category and $8.6 million of favorable development in the other general liability reserve categories. The decreases in the construction defect reserve category recognize lower than expected claims frequency and severity in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the 2010 and 2016 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014, 2016 and 2017, partially offset by increases in the 2015 and 2018 accident years which reflects higher than expected claims severity.

•

Commercial Auto Liability: A $1.4 million decrease in total, primarily in the 2000 through 2002, 2010, 2012 and 2013 accident years. The decreases recognize lower than anticipated claims severity.

•

Property: A $0.9 million decrease in aggregate mainly recognizes lower than anticipated claims severity primarily in the 2012 through 2017 accident years, partially offset by increases in the 2010 and 2018 accident years.

•

Professional: A $1.1 million decrease primarily in the 2009 and 2010 accident years reflects lower than expected claims severity.

•

Reinsurance: A $1.0 million increase was recognized based on a review of expected ceded recoverables by reinsurer. The increase was primarily in the general liability reserve categories and older accident years.

The $10.5 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

•

Property: A $10.1 million reduction recognizes an $8.9 million decrease in the catastrophe reserve category for subrogation recoveries from the California Camp wildfire loss in the 2018 accident year. The remaining $1.2 million decrease was primarily in the 2016 and 2017 accident years, mainly recognizing lower than expected claims severity.

•

General Liability: A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015 and 2016 accident years, partially offset by increases in the 2010 and 2017 accident years, recognizing higher than expected claims severity.

The $4.0 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

•

Liability: A $1.7 million decrease in total, mainly recognizes lower than expected claims severity in the 2016 and 2017 accident years, partially offset by increases in the 2013 through 2015 accident years.

•

Property: A $2.2 million reduction in aggregate recognizes a $2.0 million decrease in the 2018 accident year which is comprised of a $1.1 million decrease reflecting ceded recoveries from a second accident quarter catastrophe and a $0.9 million decrease reflecting lower than expected claims frequency and severity. Decreases in the 2015 through 2017 accident years primarily reflects lower than expected claims severity, partially offset by an increase in the 2013 accident year.

The $3.5 million increase in prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Property: A $3.8 million increase in aggregate reflects an increase of $7.6 million in the 2018 accident year for Typhoon Jebi and decreases totaling $4.1 million in the 2010 through 2017 accident years.

•

Professional: A $0.3 million decrease primarily in the 2008 and 2010 accident years, partially offset by an increase in the 2007 accident year based on a review of the experience reported from the cedants.