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Property and Casualty Insurance Activity

3 Months Ended

Mar. 31, 2024

Property and Casualty Insurance Activity

Property and Casualty Insurance Activity

Note 6 – Property and Casualty Insurance Activity

Premiums Earned

Premiums written, ceded and earned are as follows:

	Direct		Assumed		Ceded			Net

Three months ended March 31, 2024
Premiums written	$	49,324,616	$	-	$	(11,229,217	)	$	38,095,399
Change in unearned premiums		671,762		-		(9,947,259	)		(9,275,497	)
Premiums earned	$	49,996,378	$	-	$	(21,176,476	)	$	28,819,902

Three months ended March 31, 2023
Premiums written	$	47,597,446	$	-	$	(16,105,553	)	$	31,491,893
Change in unearned premiums		2,332,884		-		(5,569,824	)		(3,236,940	)
Premiums earned	$	49,930,330	$	-	$	(21,675,377	)	$	28,254,953

Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of March 31, 2024 and December 31, 2023 was $4,580,934 and $3,797,590, respectively.

Loss and Loss Adjustment Expense Reserves

The following table provides a reconciliation of the beginning and ending balances for unpaid loss and LAE reserves:

	Three months ended
	March 31,
	2024			2023

Balance at beginning of period	$	121,817,862		$	118,339,513
Less reinsurance recoverables		(33,288,650	)		(27,659,500	)
Net balance, beginning of period		88,529,212			90,680,013

Incurred related to:
Current year		18,425,855			25,042,531
Prior years		(566,268	)		(3,121	)
Total incurred		17,859,587			25,039,410

Paid related to:
Current year		4,671,653			5,886,288
Prior years		11,942,843			16,116,681
Total paid		16,614,496			22,002,969

Net balance at end of period		89,774,303			93,716,454
Add reinsurance recoverables		32,724,136			30,405,364
Balance at end of period	$	122,498,439		$	124,121,818

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $4,861,500 and $12,256,426 for the three months ended March 31, 2024 and 2023, 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 three months ended March 31, 2024 and 2023 was $566,268 favorable and $3,121 favorable, respectively. Management, on a quarterly basis, performs a review of open liability claims to assess 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 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 reviews the carried reserves levels on a regular basis as additional information becomes available and makes adjustments in the periods in which such adjustments are determined to be necessary. 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 March 31, 2021 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 March 31, 2024, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of March 31, 2024 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, 2015 to December 31, 2023 is presented as supplementary unaudited information.

																					As of
	Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance																				March 31, 2024
	For the Years Ended December 31,																		Three Months Ended March 31,				Cumulative Number of Reported Claims by
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024		IBNR		Accident Year
	(Unaudited 2015 - 2023)																		(Unaudited)

2015	$	22,340	$	21,994	$	22,148	$	22,491	$	23,386	$	23,291	$	23,528	$	23,533	$	23,428	$	23,499	$	281		2,559
2016				26,062		24,941		24,789		27,887		27,966		27,417		27,352		27,271		27,247		108		2,881
2017						31,605		32,169		35,304		36,160		36,532		36,502		36,819		36,830		227		3,401
2018								54,455		56,351		58,441		59,404		61,237		61,145		61,252		585		4,236
2019										75,092		72,368		71,544		71,964		73,310		73,438		1,316		4,505
2020												63,083		62,833		63,217		63,562		63,583		1,418		5,889
2021														96,425		96,673		96,134		96,468		3,308		5,819
2022																79,835		78,759		79,274		5,540		4,692
2023																		78,978		76,887		14,800		4,024
2024																				16,827		7,683		832
																	Total		$	555,304

All Lines of Business
*(in thousands)*
	Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,																		Three Months Ended March 31,
Accident Year	2015		2016		2017		2018		2019		2020		2021		2022		2023		2024
	(Unaudited 2015 - 2023)																		(Unaudited)

2015	$	12,295	$	16,181	$	18,266	$	19,984	$	21,067	$	22,104	$	22,318	$	22,473	$	22,519	$	22,530
2016				15,364		19,001		21,106		23,974		25,234		25,750		26,382		26,854		26,860
2017						16,704		24,820		28,693		31,393		32,529		33,522		34,683		34,729
2018								32,383		44,516		50,553		52,025		54,424		56,199		56,313
2019										40,933		54,897		58,055		60,374		63,932		64,845
2020												39,045		50,719		53,432		56,523		57,938
2021														56,282		77,756		82,317		83,311
2022																45,856		65,732		66,367
2023																		46,280		53,203
2024																				3,979
																	Total		$	470,076

Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented																			$	85,228
All outstanding liabilities before 2015, net of reinsurance																				526
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance																			$	85,753

Reported claim counts are measured on an occurrence or per event basis. A single claim occurrence could result in more than one loss type or claimant; however, the Company counts claims at the occurrence level as a single claim regardless of the number of claimants or claim features involved.

The reconciliation of the net incurred and paid loss development tables to the loss and LAE reserves in the condensed 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)*	March 31, 2024
Liabilities for allocated loss and loss adjustment expenses, net of reinsurance	$	85,753
Total reinsurance recoverable on unpaid losses		32,724
Unallocated loss adjustment expenses		4,021
Total gross liability for loss and LAE reserves	$	122,498

(Components may not sum to totals due to rounding)

Reinsurance

Effective December 31, 2021, the Company entered into a quota share reinsurance treaty for its personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, the Company entered into a new 30% quota share reinsurance treaty for its personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”). Upon the expiration of the 2023/2024 Treaty on January 1, 2024, the Company entered into a new 27% quota share reinsurance treaty for its personal lines business, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”).

The Company’s excess of loss and catastrophe reinsurance treaties expired on June 30, 2023 and the Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2023. Effective January 1, 2022, the Company entered into an underlying excess of loss reinsurance treaty (“Underlying XOL Treaty”) covering the period from January 1, 2022 through January 1, 2023. The treaty provided 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. Effective January 1, 2024, the Underlying XOL Treaty was renewed covering the period from January 1, 2024 through January 1, 2025. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows:

	Treaty Period
	2024/2025 Treaty						2023/2024 Treaty						2021/2023 Treaty
	July 1,			January 1,			July 1,			January 1,			July 1,			December 31,
	2024			2024			2023			2023			2022			2021
	to			to			to			to			to			to
	January 1,			June 30,			January 1,			June 30,			January 1,			June 30,
Line of Business	2025			2024			2024			2023			2023			2022

Personal Lines:
Homeowners, dwelling fire and canine legal liability
Quota share treaty:
Percent ceded (7)		27	%		27	%		30	%		30	%		30	%		30	%
Risk retained on intial $1,000,000 of losses (5) (6) (7)	$	730,000		$	730,000		$	700,000		$	700,000		$	700,000		$	700,000
Losses per occurrence subject to quota share reinsurance coverage	$	1,000,000		$	1,000,000		$	1,000,000		$	1,000,000		$	1,000,000		$	1,000,000

Expiration date	January 1, 2025			January 1, 2025			January 1, 2024			January 1, 2024			January 1, 2023			January 1, 2023

Excess of loss coverage and facultative facility coverage (1) (5) (6)	$	400,000		$	8,400,000		$	8,400,000		$	8,400,000		$	8,400,000		$	8,400,000
	in excess of			in excess of			in excess of			in excess of			in excess of			in excess of
	$	600,000		$	600,000		$	600,000		$	600,000		$	600,000		$	600,000

Total reinsurance coverage per occurrence (5) (6)	$	470,000		$	8,470,000		$	8,500,000		$	8,500,000		$	8,500,000		$	8,500,000

Losses per occurrence subject to reinsurance coverage (6)	$	1,000,000		$	9,000,000		$	9,000,000		$	9,000,000		$	9,000,000		$	9,000,000
Expiration date		(6	)	June 30, 2024			June 30, 2024			June 30, 2023			June 30, 2023			June 30, 2022

Catastrophe Reinsurance:
Initial loss subject to personal lines quota share treaty (6)	$	10,000,000		$	10,000,000		$	10,000,000		$	10,000,000		$	10,000,000		$	10,000,000

Risk retained per catastrophe occurrence (7) (8)		(6	)	$	9,500,000		$	8,750,000		$	8,750,000		$	7,400,000		$	7,400,000

Catastrophe loss coverage in excess of quota share coverage (2)		(6	)	$	315,000,000		$	315,000,000		$	335,000,000		$	335,000,000		$	490,000,000

Reinstatement premium protection (3) (4)		(6	)	Yes			Yes			Yes			Yes			Yes

(1)	For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2024.

(2)	Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.

(3)	For the period December 31, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.

(4)	For the period July 1, 2022 through June 30, 2023, reinstatement premium protection for $12,500,000 of catastrophe coverage in excess of $10,000,000. For the period July 1, 2023 through June 30, 2024 (expiration date of the catastrophe reinsurance treaty), reinstatement premium protection for $50,000,000 of catastrophe coverage in excess of $10,000,000.

(5)	For the period January 1, 2022 through January 1, 2025, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Excludes losses from named storms. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty and 2023/2024 Treaty. Reduces retention to $530,000 from $730,000 under the 2024/2025 Treaty.

(6)	Excess of loss coverage and facultative facility and catastrophe reinsurance treaties will expire on June 30, 2024, with none of these coverages to be in effect during the period from July 1 2024 through January 1, 2025. If and when these treaties are renewed on July 1, 2024, the excess of loss and facultative facility, and the catastrophe reinsurance treaty, will be as provided for therein. Reinsurance coverage in effect from July 1, 2024 through January 1, 2025 is currently only covered under the 2024/2025 Treaty and underlying excess of loss reinsurance treaty. The 2024/2025 Treaty and underlying excess of loss reinsurance treaty will expire on January 1, 2025.

(7)	For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2024/2025 Treaty, 22% of the 27% total of losses ceded under this treaty are excluded from a named catastrophe event.

(8)	Plus losses in excess of catastrophe coverage

	Treaty Year
	July 1, 2023			July 1, 2022
	to			to
Line of Business	June 30, 2024			June 30, 2023

Personal Lines:
Personal Umbrella
Quota share treaty:
Percent ceded - first $1,000,000 of coverage		90	%		90	%
Percent ceded - excess of $1,000,000 dollars of coverage		95	%		95	%
Risk retained	$	300,000		$	300,000
Total reinsurance coverage per occurrence	$	4,700,000		$	4,700,000
Losses per occurrence subject to quota share reinsurance coverage	$	5,000,000		$	5,000,000
Expiration date	June 30, 2024			June 30, 2023

Commercial Lines (1)

(1)

Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss.

The Company’s reinsurance program has been structured to enable the Company to grow its premium volume while maintaining regulatory capital and other financial ratios generally within or below the expected ranges used for regulatory oversight purposes. The reinsurance program also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. The Company’s participation in reinsurance arrangements does not relieve the Company of its obligations to policyholders.

Ceding Commission Revenue

The Company earned ceding commission revenue under the 2024/2025 Treaty for the three months ended March 31, 2024, and under the 2023/2024 Treaty for the three months ended March 31, 2023, based on a fixed provisional commission rate at which provisional ceding commissions are earned. The Company earned ceding commission revenue under its quota share reinsurance agreements that expired prior to the 2021/2023 Treaty based on: (i) a fixed provisional commission rate at which provisional ceding commissions were earned, and (ii) under certain of the quota share reinsurance agreements, a continuing sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increase when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decrease when the estimated ultimate loss ratio increases.

Ceding commission revenue consists of the following:

	Three months ended
	March 31,
	2024		2023

Provisional ceding commissions earned	$	4,555,240	$	5,446,808
Contingent ceding commissions earned		11,871		(1,401	)
	$	4,567,111	$	5,445,407

Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled periodically based on the Loss Ratio of each treaty year that ends on June 30, for the expired treaties that were subject to contingent commissions. As discussed above, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods develop, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. As of March 31, 2024 and December 31, 2023, net contingent ceding commissions payable to reinsurers under all treaties was approximately $3,290,000 and $3,302,000, respectively, which is recorded in reinsurance balances payable on the accompanying condensed consolidated balance sheets.

Expected Credit Losses – Uncollectible Reinsurance

The Company reviews reinsurance receivables which relate to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The Company has not recorded an allowance for uncollectible reinsurance as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. Changes in the allowance are presented as a component of other underwriting expenses on the condensed consolidated statements of operations and comprehensive income (loss).