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Liability for Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2024

Insurance [Abstract]

Liability for Unpaid Losses and Loss Adjustment Expenses

12.

Liability for Unpaid Losses and Loss Adjustment Expenses

Consolidated Activity

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


	Years Ended December 31,
(Dollars in thousands)	2024		2023		2022
Balance at beginning of period	$	850,599	$	832,404	$	759,904
Less: ceded reinsurance receivables		72,829		73,021		94,443
Net balance at beginning of period		777,770		759,383		665,461
Incurred losses and loss adjustment expenses related to:
Current year		213,118		279,609		367,298
Prior years		72		9,544		(8,070	)
Total incurred losses and loss adjustment expenses		213,190		289,153		359,228
Paid losses and loss adjustment expenses related to:
Current year		40,063		72,717		103,442
Prior years		211,260		198,049		161,864
Total paid losses and loss adjustment expenses		251,323		270,766		265,306
Net balance at end of period		739,637		777,770		759,383
Plus: ceded reinsurance receivables		60,754		72,829		73,021
Balance at end of period	$	800,391	$	850,599	$	832,404

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 2024, the Company increased its prior accident year loss reserves by $0.1 million, which consisted of a $1.8 million increase related to Penn-America and a $1.7 million decrease related to Non-Core Operations.

•

Penn-America had an increase of $1.8 million consisting of a $12.0 million increase for casualty lines across various accident years mainly due to severity offset by a $10.2 million decrease for property lines primarily related to the 2020 through 2023 accident years mainly due to severity.

•

Non-Core Operations had a decrease of $1.7 million mainly driven by severity on its casualty lines consisting of (i) a decrease of $7.8 million primarily related to accident years 2017 and 2019, (ii) an increase of $6.1 million related to accident years 2022 and 2023.

During 2023, the Company increased its prior accident year loss reserves by $9.5 million, which consisted of a $29.9 million increase related to Penn-America and a $20.3 million decrease related to Non-Core Operations.

•

Penn-America had an increase of $29.9 million consisting of (i) a $28.6 million increase for general liability mainly reflecting higher than expected claims severity in accident years 2018 through 2022, partially offset by decreases in the 1998, 2000 through 2010, 2012 and 2014 through 2017 accident years and (ii) a $1.3 million increase for property which primarily recognizes higher than expected claims severity in the 2016, 2019, 2020 and 2022 accident years, partially offset by decreases in the 2015 and 2021 accident years.

•

Non-Core Operations had a decrease of $20.3 million consisting of (i) a $0.8 million increase for property mainly recognizing higher than expected claims severity in the 2021 and 2022 accident years, partially offset by decreases in the 2016, 2018 and 2020 accident years, (ii) a $10.2 million increase for general liability primarily recognizing higher than expected claims severity in accident years prior to 1990 and 2019 through 2022, partially offset by decreases in the 1995, 2013, 2014 and 2016 through 2018 accident years, and (iii) a $31.2 million decrease in reinsurance which is comprised of a $17.7 million decrease in the property lines in the 2013 through 2021 accident years; a $7.2 million decrease recognized in professional lines in the 2017 and 2019 through 2021 accident years, partially offset by increases in the 2016 and 2022 accident years; and a $6.3 million decrease in general liability mainly in the 2012 and 2019 through 2022 accident years.

During 2022, the Company decreased its prior accident year loss reserves by $8.1 million, which consisted of a $2.8 million increase related to Penn-America and a $10.9 million decrease related to Non-Core Operations.

•

Penn-America had an increase of $2.8 million consisting of (i) a $6.0 million increase in general liability mainly reflecting higher than expected claims severity in accident years prior to 1990, 1998, 2000, 2002, 2010 and 2016 through 2020 accident years, partially offset by decreases in the 2006, 2007, 2009 and 2011 through 2015 accident years and (ii) a $3.2 million decrease in property primarily recognizing lower than expected claims severity in the 2010, 2012, 2016, 2020 and 2021 accident years, partially offset by increases in the 2011, 2015 and 2018 accident years.

•

Non-Core Operations had a decrease of $10.9 million consisting of (i) a $1.4 million increase in property mainly reflecting higher than expected claims severity in the 2016 through 2018 and 2020 accident years, partially offset by decreases in the 2019 and 2021 accident years, (ii) a $2.4 million decrease in general liability primarily recognizing lower than expected claims severity in the 1992, 2001 through 2003, 2007 through 2012 and 2014 through 2017 accident years, partially offset by increases in accident years prior to 1990 and 2018 through 2021 accident years, (iii) a $2.1 million decrease in professional primarily in 2008 through 2010 and 2012 through 2015 accident years, and (iv) a $7.6 million decrease in reinsurance comprised of a $6.3 million decrease in the property lines primarily in the 2017 through 2021 accident years, partially offset by an increase in the 2016 accident year; a $3.6 million decrease recognized in professional lines in the 2016 accident year; and a $2.3 million increase in general liability mainly in the 2019 through 2021 accident years.

Prior to 2001, the Company underwrote multi-peril business insuring general contractors, developers, and sub-contractors primarily involved in residential construction that has resulted in significant exposure to construction defect (“CD”) claims. The Company’s reserves for CD claims are established based upon Management’s best estimate in consideration of known facts, existing case law, and generally accepted actuarial methodologies. However, due to the inherent uncertainty concerning this type of business, the ultimate exposure for these claims may vary significantly from the amounts currently recorded. As of December 31, 2024 and 2023, gross reserves for CD claims were $25.8 million and $30.4 million, respectively, and net reserves for CD claims were $24.8 million and $28.8 million, respectively.

The Company has exposure to asbestos and environmental (“A&E”) claims. The asbestos exposure primarily arises from the sale of product liability insurance, and the environmental exposure arises from the sale of general liability and commercial multi-peril insurance. In establishing the liability for unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated regularly. Case law continues to evolve for such claims, and uncertainty exists about the outcome of coverage litigation and whether past claim experience will be representative of future claim experience. Included in net unpaid losses and loss adjustment expenses as of December 31, 2024, 2023, and 2022 were IBNR reserves of $15.2 million, $17.3 million, and $18.9 million, respectively, and case reserves of approximately $5.5 million, $3.8 million, and $2.8 million, respectively, for known A&E-related claims.

The following table shows the Company’s gross reserves for A&E losses:


	Years Ended December 31,
(Dollars in thousands)	2024		2023		2022
Gross reserve for A&E losses and loss adjustment expenses – beginning of period	$	36,831	$	37,142	$	39,153
Plus: Change in incurred losses and loss adjustment expenses		179		1,419		2,658
Less: Payments		1,122		1,730		4,669
Gross reserves for A&E losses and loss adjustment expenses – end of period	$	35,888	$	36,831	$	37,142

The following table shows the Company’s net reserves for A&E losses:


	Years Ended December 31,
(Dollars in thousands)	2024		2023			2022
Net reserve for A&E losses and loss adjustment expenses – beginning of period	$	21,107	$	21,647		$	21,985
Plus: Change in incurred losses and loss adjustment expenses		2		(1	)		1,962
Less: Payments		413		539			2,300
Net reserves for A&E losses and loss adjustment expenses – end of period	$	20,696	$	21,107		$	21,647

Establishing reserves for A&E and other mass tort claims involves more judgment than other types of claims due to factors including, but not limited to, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily injury claims, with an increasing focus being directed toward other parties, including installers of products containing asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance coverage litigation implicating applicable coverage defenses or determinations, if any, including but not limited to, determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of liability found in most comprehensive general liability policies.

As of December 31, 2024, 2023, and 2022, the survival ratio on a gross basis for the Company’s open A&E claims was 14.3 years, 15.1 years, and 16.9 years, respectively. As of December 31, 2024, 2023, and 2022, the survival ratio on a net basis for the Company’s open A&E claims was 19.1 years, 20.9 years, and 22.8 years, respectively. The survival ratio, which is the ratio of gross or net reserves to the 3-year average of annual paid claims, is a financial measure that indicates how long the current amount of gross or net reserves are expected to last based on the current rate of paid claims.

Line of Business Categories

The following is information, presented by lines of business with similar characteristics including similar payout patterns, about incurred and paid claims development as of December 31, 2024, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities included within the net incurred claims amounts. The years included represent the number of years for which claims incurred typically remain outstanding but need not exceed 10 years including the most recent report period presented.

The information about incurred and paid claims development for the years ended December 31, 2015 to 2023, is presented as required supplementary unaudited information.

Penn-America

Property and Casualty Methodologies

Penn-America’s internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (“ALAE”) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarial reserve reviews were completed with data through December 2024. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate loss & ALAE for most reserve categories. Management’s ultimate selections considered the internal actuarial review and a third-party actuarial review completed during the fourth quarter of 2024. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year.

Penn-America’s cumulative claim frequency has been calculated at the claim level and includes claims closed without payment.

Penn-America – Property

(Dollars in thousands)


	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,						As of December 31, 2024
Accident Year	2022		2023		2024		IBNR (1)		Cumulative Number of Reported Claims
	(unaudited)		(unaudited)
2022	$	80,485	$	81,232	$	75,739	$	2,000		3,620
2023				72,862		71,298		5,438		3,055
2024						88,354		19,693		3,269
Total					$	235,391

	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2022		2023		2024
	(unaudited)		(unaudited)
2022	$	48,646	$	71,530	$	73,138
2023				50,543		64,492
2024						51,575
Total					$	189,205

All outstanding liabilities for the accident years presented, net of reinsurance					$	46,186
All outstanding liabilities before 2022, net of reinsurance						3,721
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance					$	49,907

(1)

Incurred-but-not-reported liabilities plus expected development on reported claims

The following is required supplementary information about average historical claims duration as of December 31, 2024:


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Year	1			2			3
Penn-America - Property		64.5	%		24.9	%		2.1	%

Penn-America – Casualty

(Dollars in thousands)


	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,																				As of December 31, 2024
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024		IBNR (1)		Cumulative Number of Reported Claims
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2015	$	47,299	$	46,306	$	47,055	$	46,958	$	48,462	$	45,968	$	45,439	$	45,254	$	43,764	$	43,502	$	822		1,787
2016				45,684		45,230		44,758		43,055		42,798		42,237		42,291		42,166		41,622		712		1,646
2017						46,050		45,970		44,720		44,078		45,071		45,581		45,212		43,503		1,380		1,656
2018								48,830		48,450		47,783		47,175		47,726		47,721		48,100		1,430		2,009
2019										59,512		59,384		61,055		63,139		69,013		72,663		3,475		2,359
2020												72,149		71,693		75,412		86,132		90,542		6,907		2,515
2021														96,705		96,268		108,042		114,164		17,096		3,162
2022																123,985		129,796		130,487		44,021		3,292
2023																		122,770		123,133		75,154		2,230
2024																				113,767		94,301		1,358
																	Total		$	821,483

	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2015	$	2,903	$	11,999	$	20,459	$	28,579	$	34,932	$	37,850	$	39,078	$	40,596	$	41,655	$	42,261
2016				3,478		11,130		17,314		28,601		33,734		36,472		38,597		39,466		39,924
2017						4,412		10,286		19,818		26,834		31,766		36,672		39,833		40,137
2018								3,575		11,622		17,714		27,571		34,019		41,133		44,556
2019										4,818		12,015		24,082		38,153		51,672		61,450
2020												3,795		14,672		33,882		55,914		68,866
2021														5,639		20,405		44,663		67,334
2022																10,346		29,358		55,355
2023																		7,378		23,662
2024																				6,571
Total																			$	450,116

All outstanding liabilities for the accident years presented, net of reinsurance																			$	371,367
All outstanding liabilities before 2015, net of reinsurance																				4,737
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance																			$	376,104

(1)

Incurred-but-not-reported liabilities plus expected development on reported claims

The following is required supplementary information about average historical claims duration as of December 31, 2024:


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Year	1			2			3			4			5			6			7			8			9			10
Penn-America - Casualty		6.8	%		14.7	%		18.5	%		20.9	%		14.1	%		10.6	%		5.6	%		2.1	%		1.8	%		1.4	%

Non-Core Operations

Property and Casualty Methodologies

Non-Core Operations’ internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (“ALAE”) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarial reserve reviews were completed with data through December 2024. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate loss & ALAE. Additional actuarial methodologies were employed to develop estimates of ultimate loss & ALAE for mass tort reserve categories due to the unique characteristics of the exposures involved. Management’s ultimate selections considered the internal actuarial review and a third-party actuarial review

completed during the fourth quarter of 2024. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year.

Non-Core Operations includes experience for reinsurance contracts which the Company does not have direct access to claim frequency information, so claim frequency information will not be provided for Non-Core Operations as it is not available for all the experience contained within this category.

Non-Core Operations – Property

(Dollars in thousands)


	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,								As of December 31, 2024
Accident Year	2021		2022		2023		2024		IBNR (1)		Cumulative Number of Reported Claims
	(unaudited)		(unaudited)		(unaudited)
2021	$	111,042	$	108,443	$	109,047	$	109,567	$	3,791		10,406
2022				44,668		47,558		47,765		1,816		8,755
2023						10,105		9,724		1,701		3,269
2024								179		134		175
Total							$	167,235

	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2021		2022		2023		2024
	(unaudited)		(unaudited)		(unaudited)
2021	$	84,333	$	100,865	$	102,420	$	104,575
2022				35,635		43,468		45,613
2023						7,802		8,008
2024								32
Total							$	158,228

All outstanding liabilities for the accident years presented, net of reinsurance							$	9,007
All outstanding liabilities before 2021, net of reinsurance								33,350
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance							$	42,357

(1)

Incurred-but-not-reported liabilities plus expected development on reported claims

The following is required supplementary information about average historical claims duration as of December 31, 2024.


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Year	1			2			3			4
Non-Core Operations - Property		76.4	%		14.7	%		2.4	%		2.0	%

Non-Core Operations – Casualty

(Dollars in thousands)


	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,																				As of December 31, 2024
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024		IBNR (1)		Cumulative Number of Reported Claims
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2015	$	31,802	$	33,731	$	35,350	$	36,534	$	35,081	$	32,297	$	30,885	$	29,905	$	29,820	$	29,563	$	231		—
2016				33,548		33,246		32,042		29,685		30,308		30,047		26,130		29,460		29,556		778		—
2017						32,645		32,097		31,138		32,040		31,077		31,260		26,168		24,629		1,235		—
2018								29,798		30,168		31,126		34,749		35,067		34,131		35,965		2,249		—
2019										36,892		36,933		40,469		41,398		37,619		35,919		5,237		—
2020												55,088		56,041		57,890		53,765		53,651		15,306		—
2021														76,971		79,396		81,538		80,870		32,660		—
2022																109,182		114,189		118,123		66,732		—
2023																		66,102		68,229		48,361		—
2024																				4,272		3,550		—
Total																			$	480,777

	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
2015	$	3,979	$	11,470	$	17,615	$	23,354	$	26,144	$	27,005	$	28,231	$	28,379	$	28,445	$	28,609
2016				4,164		9,782		14,495		18,196		19,383		22,005		23,539		25,791		27,355
2017						2,633		7,230		11,915		18,263		20,183		21,912		22,904		23,207
2018								2,063		6,769		13,320		19,773		23,041		25,403		31,092
2019										2,406		7,814		15,271		21,877		25,553		28,016
2020												3,346		12,074		18,816		27,235		32,237
2021														4,820		11,121		23,355		37,785
2022																4,517		14,607		33,305
2023																		4,000		11,077
2024																				378
Total																			$	253,061

All outstanding liabilities for the accident years presented, net of reinsurance																			$	227,716
All outstanding liabilities before 2015, net of reinsurance																				28,510
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance																			$	256,226

(1)

Incurred-but-not-reported liabilities plus expected development on reported claims

The following is required supplementary information about average historical claims duration as of December 31, 2024:


	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Year	1			2			3			4			5			6			7			8			9			10
Non-Core Operations - Casualty		8.1	%		14.9	%		17.3	%		18.2	%		8.3	%		6.4	%		7.3	%		3.1	%		2.8	%		0.6	%

The reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and loss adjustment expenses in the consolidated balance sheets as of December 31, 2024 is as follows:


Net outstanding liabilities
Penn-America – Property	$	49,907
Penn-America – Casualty		376,104
Non-Core Operations – Property		42,357
Non-Core Operations – Casualty		256,226
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance		724,594
Reinsurance recoverable on unpaid claims
Penn-America – Property		2,199
Penn-America – Casualty		6,835
Non-Core Operations – Property		19,264
Non-Core Operations – Casualty		32,456
Total reinsurance recoverable on unpaid claims		60,754
Other outstanding liabilities
Penn-America
Ceded Allowance		—
Unallocated claims adjustment expenses		11,534
Loss Clearing		(1,393	)
Non-Core Operations
Ceded Allowance		8,992
Unallocated claims adjustment expenses		5,006
Loss Clearing		(8,169	)
Other		(927	)
Total other outstanding liabilities		15,043
Total gross liability for unpaid losses and loss adjustment expenses	$	800,391