Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Unpaid Losses and Loss Adjustment Expenses

NOTE 11 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides an analysis of Crusader’s loss and loss adjustment expense reserves, including a reconciliation of the beginning and ending balance sheet liability for the periods indicated:

	Nine Months Ended September 30
	2017		2016
Reserve for unpaid losses and loss adjustment expenses at January 1 – gross of reinsurance	$	47,055,787	$	49,093,571
Less reinsurance recoverable on unpaid losses and loss adjustment expenses		9,520,970		9,636,961
Reserve for unpaid losses and loss adjustment expenses at January 1 – net of reinsurance		37,534,817		39,456,610
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		18,046,953		17,119,210
Development of insured events of prior years		6,304,798		863,141
Total incurred losses and loss adjustment expenses		24,351,751		17,982,351
Loss and loss adjustment expense payments:
Attributable to insured events of the current year		4,375,729		4,783,251
Attributable to insured events of prior years		16,335,178		12,487,969
Total payments		20,710,907		17,271,220
Reserve for unpaid losses and loss adjustment expenses at September 30 – net of reinsurance		41,175,661		40,167,741
Reinsurance recoverable on unpaid losses and loss adjustment expenses		11,890,854		9,653,714
Reserve for unpaid losses and loss adjustment expenses at September 30 – gross of reinsurance	$	53,066,515	$	49,821,455

Some lines of insurance are commonly referred to as "long-tail" lines because of the extended time required before claims are ultimately settled. Lines of insurance in which claims are settled relatively quickly are called "short-tail" lines. It is generally more difficult to estimate loss reserves for long-tail lines because of the long period of time that elapses between the occurrence of a claim and its final disposition and the difficulty of estimating the settlement value of the claim. Crusader’s short-tail lines consist of its property coverages, and its long-tail lines consist of its liability coverages. However, Crusader’s long-tail liability claims tend to be settled relatively quicker than other long-tail lines not underwritten by Crusader, such as workers’ compensation, professional liability, umbrella liability, and medical malpractice. Since trends develop over longer periods of time on long-tail lines of business, the Company generally gives credibility to those trends more slowly than for short-tail or less volatile lines of business.

The $927,743 increase in the provision for insured events of current year for the nine months ended September 30, 2017, compared to the provision for insured events of current year for the nine months ended September 30, 2016, was due primarily to an aberrational increase in the frequency and severity of accident year 2017 short-tail property claims during the three months ended March 31, 2017.

The $5,441,657 increase in the development of insured events of prior years for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily due to higher than expected severity of long-tail assault and battery liability claims in accident years 2011, 2014, and 2016 associated with Crusader’s Food, Beverage and Entertainment program. The Company believes the increase in the severity for these claims as compared to prior periods is due to relatively recent social, legal, and economic changes. The development on the accident year 2011 was due primarily to $1,497,499 in additional losses and loss adjustment expenses incurred due to the September 2017 $7,000,000 settlement (see Note 12). The developments on the accident years 2014 and 2016 were due primarily to the unexpected increase in the severity of existing assault and battery claims. As a result of the foregoing losses and loss adjustment expenses and the observed trend of increasing severity of assault and battery claims, the Company decided to significantly curtail or entirely exclude coverage for risks of assault and battery covered through the Food, Beverage and Entertainment program.