Liability for Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2023

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)	2023			2022			2023		2022
Balance at beginning of period	$	866,951		$	804,661		$	832,404	$	759,904
Less: Ceded reinsurance receivables		73,933			94,185			73,021		94,443
Net balance at beginning of period		793,018			710,476			759,383		665,461
Incurred losses and loss adjustment expenses related to:
Current year		65,167			91,451			231,199		275,398
Prior years		(51	)		(2,992	)		—		(9,626	)
Total incurred losses and loss adjustment expenses		65,116			88,459			231,199		265,772
Paid losses and loss adjustment expenses related to:
Current year		20,990			33,972			55,174		76,366
Prior years		50,361			35,282			148,625		125,186
Total paid losses and loss adjustment expenses		71,351			69,254			203,799		201,552
Net balance at end of period		786,783			729,681			786,783		729,681
Plus: Ceded reinsurance receivables		75,020			95,913			75,020		95,913
Balance at end of period	$	861,803		$	825,594		$	861,803	$	825,594

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 2023, the Company decreased its prior accident year loss reserves by $0.1 million, which consisted of a $14.5 million increase related to Commercial Specialty, a $2.7 million decrease related to Reinsurance Operations, and a $11.9 million decrease related to Exited Lines.

The $14.5 million increase in prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

Property: A $2.2 million increase primarily recognizes higher than expected claims severity in the 2015 and 2018 through 2022 accident years.

•

General Liability: A $12.4 million increase primarily recognizes higher than expected claims severity in the 2019 through 2022 accident years mainly due to a restaurant book of business that was not renewed and other terminated business, partially offset by decreases in accident years prior to 2005 and 2005 through 2018 accident years. Decreases related to construction defect segments totaled $6.5 million.

•

Professional: A $0.1 million decrease was mainly recognized in accident years prior to 2016.

The $2.7 million decrease of prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Professional: A $2.6 million decrease primarily recognized favorable case incurred emergence in the 2020 accident year and a decrease in the 2017 accident year, partially offset by an increase in the 2016 accident year.

The $11.9 million decrease in prior accident year loss reserves related to Exited Lines primarily consisted of the following:

•

Property: A $10.0 million decrease primarily resulted from the commutation of a reinsurance treaty related to the 2013 through 2020 accident years, partially offset by an increase in the 2022 accident year.

•

General Liability: A $1.8 million decrease primarily recognizes lower than expected claims severity in the 2014, 2016 through 2019, 2021 and 2022 accident years mainly related to the Farm, Ranch & Stable business.

During the third quarter of 2022, the Company decreased its prior accident year loss reserves by $3.0 million, which consisted of a $1.2 million decrease related to Commercial Specialty, a $1.2 million decrease related to Reinsurance Operations, and a $0.6 million decrease related to Exited Lines.

The $1.2 million decrease of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

Property: A $1.8 million decrease primarily recognizes lower than expected claims severity in the 2020 and 2021 accident years.

•

General Liability: A $0.5 million increase mainly reflects higher than expected claims severity in accident years prior to 2005, 2005, 2017 and 2019 accident years, partially offset by decreases in the 2013, 2014, 2016, 2018 and 2020 accident years.

The $1.2 million reduction of prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Professional: A $1.2 million decrease was recognized in the 2016 accident year reflecting a reduction in the ultimate for the claims-made segment. The inception-to-date case incurred remains zero in this year.

The $0.6 million reduction of prior accident year loss reserves related to Exited Lines primarily consisted of the following:

•

Property: A $2.2 million increase primarily recognizes higher than expected claims severity in the 2016, 2020 and 2021 accident years.

•

Reinsurance: A $2.7 million decrease primarily in the 2017 through 2021 accident years, partially offset by an increase in the 2016 accident year, was based on the reported information from cedants.

During the first nine months of 2023, the Company's adjustments to prior accident year loss reserves netted to zero. These adjustments consisted of a $21.0 million increase related to Commercial Specialty, a $1.7 million decrease related to Reinsurance Operations, and a $19.3 million decrease related to Exited Lines.

The $21.0 million increase of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

Property: A $1.4 million increase primarily recognizes higher than expected claims severity in the 2015, 2018 through 2020 and 2022 accident years, partially offset by a decrease in the 2021 accident year.

•

General Liability: A $19.7 million increase primarily recognizes higher than expected claims severity in the 2013 and 2019 through 2022 accident years mainly due to a restaurant book of business that was not renewed and other terminated business, partially offset by decreases in accident years prior to 2013 and 2014 through 2018 accident years. Decreases related to construction defect segments totaled $8.6 million.

•

Professional: A $0.1 million decrease was mainly recognized in accident years prior to 2017.

The $1.7 million decrease of prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Professional: A $1.5 million decrease primarily recognized favorable case incurred emergence in the 2020 accident year and a decrease in the 2017 accident year, partially offset by increases in the 2016 and 2022 accident years.

•

General Liability: A $0.1 million decrease based on information received from the cedants.

The $19.3 million reduction of prior accident year loss reserves related to Exited Lines primarily consisted of the following:

•

Property: A $15.9 million decrease is primarily due to the commutation of a reinsurance treaty related to the 2013 through 2020 accident years and other reductions reflecting lower than expected claims severity, partially offset by increases in the 2021 and 2022 accident years.

•

General Liability: A $3.4 million decrease primarily recognizes lower than expected claims severity in accident years 2012 through 2019, 2021 and 2022 mainly related to the Farm, Ranch & Stable business.

During the first nine months of 2022, the Company decreased its prior accident year loss reserves by $9.6 million, which consisted of a $1.6 million decrease related to Commercial Specialty, a $2.5 million decrease related to Reinsurance Operations, and a $5.5 million decrease related to Exited Lines.

The $1.6 million decrease of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

•

Property: A $3.3 million decrease primarily recognizes lower than expected claims severity in the 2019 through 2021 accident years.

•

General Liability: A $1.7 million increase mainly reflects higher than expected claims severity in accident years prior to 2005 and the 2017, 2019 and 2020 accident years, partially offset by decreases in the 2006, 2007, 2011 through 2015, 2018 and 2021 accident years.

The $2.5 million reduction of prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

•

Professional: A $2.4 million decrease was recognized in the 2016 accident year reflecting a reduction in the ultimate for the claims-made segment. The inception-to-date case incurred remains zero in this year.

The $5.5 million reduction of prior accident year loss reserves related to Exited Lines primarily consisted of the following:

•

Property: A $2.0 million increase primarily recognizes higher than expected claims severity in the 2016, 2017, 2020 and 2021 accident years, partially offset by a reduction in the 2018 accident year.

•

General Liability: A $0.6 million reduction mainly reflects lower than expected claims severity in the 2017, 2019 and 2021 accident years, partially offset by an increase in the 2018 accident year.

•

Reinsurance: A $7.0 million decrease in the 2017 through 2021 accident years, partially offset by an increase in the 2016 accident year, was based on reported information from the cedants.