Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Unpaid Losses and Loss Adjustment Expenses

NOTE 8 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Crusader’s loss and loss adjustment expense case and incurred but not reported (“IBNR”) reserves are as follows:

	Year ended December 31
	2020		2019
Gross reserves:
Case reserves	$	26,363,695	$	23,663,743
IBNR reserves		48,529,814		31,402,737
Total gross reserves	$	74,893,509	$	55,066,480
Reserves net of reinsurance:
Case reserves	$	21,027,703	$	18,128,008
IBNR reserves		31,612,164		22,212,617
Total net reserves	$	52,639,867	$	40,340,625

Reserves for losses and loss adjustment expenses before reinsurance for each of Crusader’s lines of business are as follows:

	Year ended December 31
Line of Business	2020				2019
CMP	$	73,545,181	98.2	%	$	54,270,633	98.6	%
Other liability		1,283,174	1.7	%		776,957	1.4	%
Other		65,154	0.1	%		18,890	0.0	%
Total	$	74,893,509	100.0	%	$	55,066,480	100.0	%

The Company‘s consolidated financial statements include estimated reserves for unpaid losses and related loss adjustment expenses of the insurance company operation. Crusader sets loss and loss adjustment expense reserves at each balance sheet date based upon management’s best estimate of the ultimate payments that it anticipates will be made to settle all losses incurred and all related loss adjustment expenses incurred as of that date for both reported and unreported claims.

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

	Year ended December 31
	2020		2019
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	40,340,625	$	42,125,553
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		26,683,872		19,384,942
Provision for incurred events of prior years		7,959,048		3,191,185
Total incurred losses and loss adjustment expenses		34,642,920		22,576,127
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		8,285,021		6,210,475
Losses and loss adjustment expenses attributable to insured events of prior years		14,058,657		18,150,580
Total payments		22,343,678		24,361,055
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		52,639,867		40,340,625
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		22,253,642		14,725,855
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	74,893,509	$	55,066,480

The $26,683,872 provision for insured events of current year for the year ended December 31, 2020, was $7,298,930 higher than the $19,384,942 provision for insured events of current year for the year ended December 31, 2019, due primarily to increased IBNR reserves associated with the Apartments & Commercial Buildings and Transportation verticals. The increases in IBNR reserves were due to higher actuarially developed ultimate incurred losses and loss adjustment expenses primarily as a result of elevated expected claims severity.

The $7,959,048 adverse development of insured events of prior years for the year ended December 31, 2020, was $4,767,863 higher than the $3,191,185 adverse development of insured events of prior year for the year ended December 31, 2019, due primarily to increases in 2018 and 2019 accident year IBNR reserves associated with the Apartments & Commercial Buildings and Transportation verticals. The increases in IBNR were due to higher actuarially developed ultimate incurred losses and loss adjustment expenses primarily as a result of elevated expected claims severity.

At each review period, actual claims costs that emerge are compared with the claims costs that were expected to emerge during that development period. Sometimes the previous claims costs estimates prove to have been too high; sometimes they prove to have been too low. The fluctuation in development of insured events of prior years’ underscores the inherent uncertainty in insurance claims costs, especially for a relatively small insurer, such as Crusader. Management reviews claims costs that appear to be different from the historical claims costs to determine whether those differences are a normal part of the process or an indication that a change in reserve assumptions is appropriate. Management concluded that the differences noted above are differences between actual and expected claims costs that emerge from time to time, particularly in an insurer the size of Crusader.

The following table presents loss development information by accident year, including cumulative incurred and paid losses and allocated loss adjustment expenses (“ALAE”), net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities plus expected development on reported claims as of December 31, 2020:

Accident Year		Cumulative Incurred		Cumulative Paid		Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims	Cumulative Number of Reported Claims
2011	$	19,150,281	$	19,150,278	$	—	1,020
2012		18,327,346		18,020,565		222	967
2013		22,802,931		22,802,275		2	849
2014		18,048,285		17,806,537		150,672	760
2015		24,495,614		21,502,400		635,716	749
2016		26,337,621		23,326,143		1,565,938	803
2017		25,091,934		18,869,369		3,060,474	807
2018		20,670,880		12,129,118		6,146,217	605
2019		19,182,851		7,603,418		7,134,966	639
2020		24,302,958		6,004,292		12,910,459	699
Total	$	218,410,701	$	167,214,395	$	31,604,666

The following table reconciles the above cumulative incurred and paid data to Crusader’s loss and loss adjustment expense reserves:

	Year ended December 31
	2020			2019
Cumulative incurred losses and ALAE	$	218,410,701		$	203,000,161
Less cumulative paid losses and ALAE		(167,214,395	)		(164,132,073	)
Reserve for unpaid losses and ALAE (latest 10 accident years)		51,196,306			38,868,088
Reserves for unpaid losses and ALAE (beyond latest 10 accident years)		79,703			126,042
Reserves for unpaid unallocated loss adjustment expenses		1,363,858			1,346,495
Reserve for unpaid losses and loss adjustment expenses, net of reinsurance		52,639,867			40,340,625
Reinsurance recoverable on unpaid losses and loss adjustment expenses		22,253,642			14,725,855
Reserve for unpaid losses and loss adjustment expenses, gross of reinsurance	$	74,893,509		$	55,066,480

Crusader’s liability for unpaid loss and loss adjustment expense reserves consists of case reserves and reserves for IBNR claims. Case reserves are established by claims personnel based on a review of the facts known at the time the claim is reported and are subsequently revised as more information about a claim becomes known. IBNR is estimated using various actuarial methods and techniques and includes (1) reserves for losses and loss adjustment expenses on claims that have occurred but for which claims have not yet been reported to Crusader, and (2) a provision for expected future development on case reserves for information not currently known.

At the end of each fiscal quarter, Crusader’s reserves for each accident year (i.e., for all claims occurring within each year) are re-evaluated independently by the Company’s president, the Company’s chief financial officer, and an independent consulting actuary.  Generally accepted actuarial methods, including the widely used Bornhuetter-Ferguson and loss development methods, are employed to estimate ultimate claims costs. An actuarial central estimate of the ultimate claims costs and IBNR reserves is ultimately determined by management and tested for reasonableness by the independent consulting actuary.

The Company determines the number of reported claims based on the number of loss events. A claim is considered a single loss event, per policy, and it may include multiple claimants and multiple coverages on a single policy. The cumulative number of reported claims is a sum of open claims, closed claims, and claims closed without payment.