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Property and Casualty Insurance Activity

12 Months Ended

Dec. 31, 2020

Property and Casualty Insurance Activity

11. Property and Casualty Insurance Activity

Note 11 - Property and Casualty Insurance Activity

Premiums written, ceded and earned are as follows:

	Direct			Assumed			Ceded			Net

Year ended December 31, 2020
Premiums written	$	169,317,904		$	-		$	(42,255,383	)	$	127,062,521
Change in unearned premiums		373,966			-			(19,355,858	)		(18,981,892	)
Premiums earned	$	169,691,870		$	-		$	(61,611,241	)	$	108,080,629

Year ended December 31, 2019
Premiums written	$	171,214,091		$	939		$	(45,635,899	)	$	125,579,131
Change in unearned premiums		(11,350,864	)		(243	)		13,395,418			2,044,311
Premiums earned	$	159,863,227		$	696		$	(32,240,481	)	$	127,623,442

The components of the liability for loss and LAE expenses and related reinsurance receivables as of December 31, 2020 and 2019 are as follows:

	Gross		Reinsurance
	Liability		Receivables
December 31, 2020
Case-basis reserves	$	47,657,198	$	15,432,347
Loss adjustment expenses		13,610,284		1,882,419
IBNR reserves		21,533,746		2,839,486
Recoverable on unpaid losses				20,154,252
Recoverable on paid losses		-		14,787,037
Total loss and loss adjustment expenses	$	82,801,228		34,941,289
Unearned premiums				282,131
Receivables - reinsurance contracts				10,237,309
Total reinsurance receivables			$	45,460,729

December 31, 2019
Case-basis reserves	$	48,688,643	$	12,894,469
Loss adjustment expenses		12,606,236		1,416,686
IBNR reserves		19,203,732		1,417,070
Recoverable on unpaid losses				15,728,225
Recoverable on paid losses		-		5,384,325
Total loss and loss adjustment expenses	$	80,498,611		21,112,550
Unearned premiums				19,637,988
Total reinsurance receivables			$	40,750,538

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $27,951,005 and $12,769,015 for the years ended December 31, 2020 and 2019, respectively.

Prior year incurred loss and LAE development is based upon estimates by line of business and accident year. Prior year loss and LAE development incurred during the years ended December 31, 2020 and 2019 was $41,165 unfavorable and $11,138,023 unfavorable, respectively. During the year ended December 31, 2019, the Company increased case reserves for certain older open liability claims, which primarily affected the ultimate loss projections for commercial lines business. This was in response to management’s detailed review of open liability claims that resulted in new assessments of carried case and incurred but not reported (“IBNR”) reserve levels, giving consideration to both Company and industry trends.

Loss and LAE reserves

The reserving process for loss and LAE reserves provides for the Company’s best estimate at a particular point in time of the ultimate unpaid cost of all losses and LAE incurred, including settlement and administration of losses, and is based on facts and circumstances then known including losses that have occurred but that have not yet been reported. The process relies on standard actuarial reserving methodologies, judgments relative to estimates of ultimate claim severity and frequency, the length of time before losses will develop to their ultimate level (‘tail’ factors), and the likelihood of changes in the law or other external factors that are beyond the Company’s control. Several actuarial reserving methodologies are used to estimate required loss reserves. The process produces carried reserves set by management based upon the actuaries’ best estimate and is the cumulative combination of the best estimates made by line of business, accident year, and loss and LAE. The amount of loss and LAE reserves for individual reported claims (the “case reserve”) is determined by the claims department and changes over time as new information is gathered. Such information is critical to the review of appropriate IBNR reserves and includes a review of coverage applicability, comparative liability on the part of the insured, injury severity, property damage, replacement cost estimates, and any other information considered pertinent to estimating the exposure presented by the claim. The amounts of loss and LAE reserves for unreported claims and development on known claims (IBNR reserves) are determined using historical information aggregated by line of insurance as adjusted to current conditions. Since this process produces loss reserves set by management based upon the actuaries’ best estimate, there is no explicit or implicit provision for uncertainty in the carried loss reserves.

Due to the inherent uncertainty associated with the reserving process, the ultimate liability may differ, perhaps substantially, from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. On at least a quarterly basis, the Company reviews by line of business existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior periods. Several methods are used, varying by line of business and accident year, in order to select the estimated period-end loss reserves. These methods include the following:

Paid Loss Development – historical patterns of paid loss development are used to project future paid loss emergence in order to estimate required reserves.

Incurred Loss Development – historical patterns of incurred loss development, reflecting both paid losses and changes in case reserves, are used to project future incurred loss emergence in order to estimate required reserves.

Paid Bornhuetter-Ferguson (“BF”) – an estimated loss ratio for a particular accident year is determined, and is weighted against the portion of the accident year claims that have been paid, based on historical paid loss development patterns. The estimate of required reserves assumes that the remaining unpaid portion of a particular accident year will pay out at a rate consistent with the estimated loss ratio for that year. This method can be useful for situations where an unusually high or low amount of paid losses exists at the early stages of the claims development process.

Incurred Bornhuetter-Ferguson (“BF”) - an estimated loss ratio for a particular accident year is determined, and is weighted against the portion of the accident year claims that have been reported, based on historical incurred loss development patterns. The estimate of required reserves assumes that the remaining unreported portion of a particular accident year will pay out at a rate consistent with the estimated loss ratio for that year. This method can be useful for situations where an unusually high or low amount of reported losses exists at the early stages of the claims development process.

Incremental Claim-Based Methods – historical patterns of incremental incurred losses and paid LAE during various stages of development are reviewed and assumptions are made regarding average loss and LAE development applied to remaining claims inventory. Such methods more properly reflect changes in the speed of claims closure and the relative adequacy of case reserve levels at various stages of development. These methods may provide a more accurate estimate of IBNR for lines of business with relatively few remaining open claims but for which significant recent settlement activity has occurred.

Frequency / Severity Based Methods – historical measurements of claim frequency and average paid claim size (severity) are reviewed for more mature accident years where a majority of claims have been reported and/or closed. These historical averages are trended forward to more recent periods in order to estimate ultimate losses for newer accident years that are not yet fully developed. These methods are useful for lines of business with slow and/or volatile loss development patterns, such as liability lines where information pertaining to individual cases may not be completely known for many years. The claim frequency and severity information for older periods can then be used as reasonable measures for developing a range of estimates for more recent immature periods.

Management’s best estimate of required reserves is generally based on an average of the methods above, with appropriate weighting of methods based on the line of business and accident year being projected. In some cases, additional methods or historical data from industry sources are employed to supplement the projections derived from the methods listed above.

Three key assumptions that materially affect the estimate of loss reserves are the loss ratio estimate for the current accident year used in the BF methods, the loss development factor selections used in the loss development methods, and the loss severity assumptions used in the frequency / severity method described above. The loss ratio estimates used in the BF methods are selected after reviewing historical accident year loss ratios adjusted for rate changes, trend, and mix of business. The loss severity assumptions used in the frequency / severity method are determined by reviewing historical average claim severity for older more mature accident periods, trended forward to less mature accident periods.

The Company is not aware of any claim trends that have emerged or that would cause future adverse development that have not already been contemplated in setting current carried reserves levels.

In New York State, lawsuits for negligence are subject to certain limitations and must be commenced within three years from the date of the accident or are otherwise barred. Accordingly, the Company’s exposure to unreported claims (“pure” IBNR) for accident dates of December 31, 2017 and prior is limited, although there remains the possibility of adverse development on reported claims (“case development” IBNR). In certain rare circumstances states have retroactively revised a statute of limitations. The Company is not aware of any such effort that would have a material impact on the Company’s results.

The following is information about incurred and paid claims development as of December 31, 2020, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of December 31, 2020 included in the net incurred loss and allocated expense amounts. The historical information regarding incurred and paid claims development for the years ended December 31, 2011 to December 31, 2019 is presented as supplementary unaudited information.

All Lines of Business
*(in thousands, except reported claims data)*
																					As of
	Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance																				December 31, 2020
	For the Years Ended December 31,																				IBNR		Cumulative Number of Reported Claims by Accident Year
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	(Unaudited 2011 - 2019)

2011	$	7,603	$	7,678	$	8,618	$	9,440	$	9,198	$	9,066	$	9,144	$	9,171	$	9,127	$	9,128	$	-		1,914
2012				9,539		9,344		10,278		10,382		10,582		10,790		10,791		11,015		10,885		13		4,704	(1)
2013						10,728		9,745		9,424		9,621		10,061		10,089		10,607		10,495		5		1,563
2014								14,193		14,260		14,218		14,564		15,023		16,381		16,428		257		2,138
2015										22,340		21,994		22,148		22,491		23,386		23,291		312		2,556
2016												26,062		24,941		24,789		27,887		27,966		461		2,878
2017														31,605		32,169		35,304		36,160		654		3,391
2018																54,455		56,351		58,441		1,928		4,208
2019																		75,092		72,368		9,547		4,442
2020																				63,083		11,421		5,596
Total																			$	328,244

The reconciliation of the net incurred and paid claims development tables to the liability for loss and LAE reserves in the consolidated balance sheet is as follows:

Reconciliation of the Disclosure of Incurred and Paid Loss Development
to the Liability for Loss and LAE Reserves

	As of
*(in thousands)*	December 31, 2020
Liabilities for allocated loss and loss adjustment expenses, net of reinsurance	$	60,047
Total reinsurance recoverable on unpaid losses		20,154
Unallocated loss adjustment expenses		2,600
Total gross liability for loss and LAE reserves	$	82,801