v3.22.1

Reserve for Loss and Loss Adjustment Expenses | 3 Months Ended
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Mar. 31, 2022
Insurance [Abstract] |
Reserve for Loss and Loss Adjustment Expenses | Reserve for Loss and Loss Adjustment Expenses The Company uses both historical experience and industry-wide loss development factors to provide a reasonable basis for estimating future losses. In the future, certain events may be beyond the control of management, such as changes in law, judicial interpretations of law, and rates of inflation, which may favorably or unfavorably impact the ultimate settlement of the Company’s loss and LAE reserves. The anticipated effect of inflation is implicitly considered when estimating liabilities for loss and LAE. While anticipated changes in claim costs due to inflation are considered in estimating the ultimate claim costs, changes in the average severity of claims are caused by a number of factors that vary with the individual type of policy written. Ultimate losses are projected based on historical trends adjusted for implemented changes in underwriting standards, claims handling, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual development and are modified if necessary. The reserving process begins with the collection and analysis of paid losses and incurred claims data for each of the Company's contracts. While reserves are mostly reviewed on a contract by contract basis, paid loss and incurred claims data is also aggregated into reserving segments. The segmental data is disaggregated by reserving class and further disaggregated by either accident year (i.e. the year in which the loss event occurred) or by underwriting year (i.e. the year in which the contract generating the premium and losses incepted). In cases where the Company uses underwriting year information, reserves are subsequently allocated to the respective accident year. The reserve for loss and LAE consists of:
|  | March 31, 2022 |  | December 31, 2021
Reserve for reported loss and LAE |  | $ | 804,771 |  |  | $ | 851,950 |
Reserve for losses incurred but not reported ("IBNR") |  | 581,252 |  |  | 637,423 |
Reserve for loss and LAE |  | $ | 1,386,023 |  |  | $ | 1,489,373 |
The following table represents a reconciliation of our beginning and ending gross and net loss and LAE reserves:
For the Three Months Ended March 31, |  | 2022 |  | 2021
Gross loss and LAE reserves, January 1 |  | $ | 1,489,373 |  |  | $ | 1,893,299 |
Less: reinsurance recoverable on unpaid losses, January 1 |  | 562,845 |  |  | 592,571 |
Net loss and LAE reserves, January 1 |  | 926,528 |  |  | 1,300,728 |
Net incurred losses related to: |  |  |  |
Current year |  | 5,002 |  |  | 7,913 |
Prior years |  | (7,285) |  |  | (5,554) |
|  | (2,283) |  |  | 2,359 |
Net paid losses related to: |  |  |  |
Current year |  | (49) |  |  | (82) |
Prior years |  | (101,669) |  |  | (92,563) |
|  | (101,718) |  |  | (92,645) |
Change in deferred gain on retroactive reinsurance |  | 1,339 |  |  | 9,845 |
Assumed retroactive reinsurance business |  | 14,350 |  |  | — |
Effect of foreign exchange rate movements |  | (10,455) |  |  | (16,488) |
Net loss and LAE reserves, March 31 |  | 827,761 |  |  | 1,203,799 |
Reinsurance recoverable on unpaid losses, March 31 |  | 558,262 |  |  | 580,709 |
Gross loss and LAE reserves, March 31 |  | $ | 1,386,023 |  |  | $ | 1,784,508 |
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves established in previous calendar years. The favorable or unfavorable development reflects changes in management's best estimate of the ultimate losses under the relevant reinsurance policies after considerable review of changes in actuarial assessments. During the three months ended March 31, 2022, the Company recognized net favorable prior year loss development of $7,285 (2021 - favorable $5,554). In the Diversified Reinsurance segment, net favorable prior year loss development was $2,211 for the three months ended March 31, 2022 (2021 - adverse $14). Prior year loss development for the three months ended March 31, 2022 was due to favorable reserve development in German Auto Programs and other runoff business. Prior year loss development for the three months ended March 31, 2021 was largely due to adverse reserve development in European Capital Solutions and other runoff business. 9. Reserve for Loss and Loss Adjustment Expenses (continued) In the AmTrust Reinsurance segment, the net favorable prior year loss development was $5,074 for the three months ended March 31, 2022 (2021 - favorable $5,568). The net favorable prior year loss development for the three months ended March 31, 2022 was primarily due to favorable development from Workers Compensation policies and adjustments to AmTrust's inuring reinsurance for certain programs in Specialty Risk and Extended Warranty. The net favorable prior year loss development for the three months ended March 31, 2021 was primarily due to favorable development in Workers Compensation partly offset by adverse development in Hospital Liability. The change in the deferred gain on retroactive reinsurance was $1,339 for the three months ended March 31, 2022 (2021 - $9,845). This change included a $1,000 decrease in the deferred gain liability and related reinsurance recoverable on unpaid losses under the LPT/ADC Agreement with Cavello recognized in the three months ended March 31, 2022 (2021 - $9,845) for favorable development on reserves covered under the LPT/ADC Agreement. The deferred gain on retroactive reinsurance under the LPT/ADC Agreement represents the cumulative adverse development for covered risks in the AmTrust Quota Share as of March 31, 2022 and December 31, 2021. Amortization of the deferred gain will not occur until paid losses have exceeded the minimum retention under the LPT/ADC Agreement, which is estimated to be in 2024.

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- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -URI http://asc.fasb.org/subtopic&trid=2560295 + Details
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