UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

9 Months Ended

Sep. 30, 2021

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

NOTE 11 - 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
	2021			2020
Reserve for unpaid losses and loss adjustment expenses at January 1 – gross of reinsurance	$	74,893,509		$	55,066,480
Less reinsurance recoverable on unpaid losses and loss adjustment expenses		22,253,642			14,725,855
Reserve for unpaid losses and loss adjustment expenses  at January 1 – net of reinsurance		52,639,867			40,340,625
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		20,529,747			19,925,024
Development of insured events of prior years		(2,007,929	)		8,161,318
Total incurred losses and loss adjustment expenses		18,521,818			28,086,342
Loss and loss adjustment expense payments:
Attributable to insured events of the current year		5,455,432			5,685,642
Attributable to insured events of prior years		11,663,536			11,756,705
Total payments		17,118,968			17,442,347
Reserve for unpaid losses and loss adjustment expenses at September 30 – net of reinsurance		54,042,716			50,984,620
Reinsurance recoverable on unpaid losses and loss adjustment expenses		24,494,179			23,349,279
Reserve for unpaid losses and loss adjustment expenses at September 30 – gross of reinsurance	$	78,536,895		$	74,333,899

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. The Company has reinsurance to mitigate the impact of large losses on the financial position of Crusader.

The following changes occurred in the third quarter of 2021. On August 31, 2021, Crusader and United Specialty Insurance Company (“USIC”), terminated the Quota Share Reinsurance Agreement (the “Reinsurance Agreement”), effective April 1, 2020, by and between Crusader and USIC. Pursuant to the Reinsurance Agreement, Crusader agreed to reinsure all of USIC’s liability for policies issued by USIC and produced by Unifax, for property, general liability, CMP, CMP liability and other miscellaneous coverages, subject to certain maximum policy limits. Crusader’s obligations under the Reinsurance Agreement continue after termination for business in force at the time of termination, for policies with effective dates prior to the termination but issued after the termination date, and for policies that must be issued or renewed as a matter of law until the expiration of the policies.

On August 31, 2021, as a result of the termination of the Reinsurance Agreement, the Surplus Line Broker Agreement (the “Broker Agreement”), effective April 1, 2020, by and between Unifax and USIC, automatically terminated. Pursuant to the Broker Agreement, USIC authorized Unifax to act as its broker for the purpose of producing and administering certain specified classes of insurance policies, which are the subject of the Reinsurance Agreement. Unifax’s obligations under the Broker Agreement continue after termination for insurance business reinsured under the Broker Agreement. Unifax’s obligations include handling and servicing of all policies until their expiration.

On August 31, 2021, as a result of the termination of the Broker Agreement, the Claims Administration Agreement (the “Claims Administration Agreement”), effective April 1, 2020, by and between U.S. Risk Managers, Inc. and USIC, automatically terminated. Pursuant to the Claims Administration Agreement, USIC appointed U.S. Risk to adjust and settle claims on its behalf in connection with the surplus lines policies issued by USIC in connection with the Reinsurance Agreement. Upon termination of the Claims Administration Agreement, U.S. Risk is obligated (unless revoked by USIC) to continue to manage claims during the run-off of the business reinsured.

The parties agreed to mutually terminate the Reinsurance Agreement. There are no early termination penalties incurred as a result of the termination. The Reinsurance Agreement provides for a minimum ceding fee, and, upon termination of the Reinsurance Agreement, the minimum ceding fee shall be pro-rated to the date of termination unless there are policies issued after the termination of the Reinsurance Agreement. In such case, the minimum ceding fee shall continue past the termination of the Reinsurance Agreement until such time as no further policies are issued. Accordingly, the Company estimates that Crusader may pay an additional $276,000 to USIC for the minimum ceding fee in addition to the $120,000 previously paid.