Unpaid Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2021

Unpaid Losses and Loss Adjustment Expenses

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:

	December 31
	2021		2020
Gross reserves:
Case reserves	$	29,293,117	$	26,363,695
IBNR reserves		53,199,557		48,529,814
Total gross reserves	$	82,492,674	$	74,893,509
Reserves net of reinsurance:
Case reserves	$	23,057,464	$	21,027,703
IBNR reserves		32,319,167		31,612,164
Total net reserves	$	55,376,631	$	52,639,867

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	2021				2020
CMP	$	81,303,803	98.5	%	$	73,545,181	98.2	%
Other liability		1,122,823	1.4	%		1,283,174	1.7	%
Other		66,048	0.1	%		65,154	0.1	%
Total	$	82,492,674	100.0	%	$	74,893,509	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
	2021			2020
Reserve for unpaid losses and loss adjustment expenses at beginning of year – net of reinsurance	$	52,639,867		$	40,340,625
Incurred losses and loss adjustment expenses:
Provision for insured events of current year		26,097,435			26,683,872
Provision for insured events of prior years		(124,595	)		7,959,048
Total incurred losses and loss adjustment expenses		25,972,840			34,642,920
Payments:
Losses and loss adjustment expenses attributable to insured events of the current year		8,007,546			8,285,021
Losses and loss adjustment expenses attributable to insured events of prior years		15,228,530			14,058,657
Total payments		23,236,076			22,343,678
Reserve for unpaid losses and loss adjustment expenses at end of year – net of reinsurance		55,376,631			52,639,867
Reinsurance recoverable on unpaid losses and loss adjustment expenses at end of year		27,116,043			22,253,642
Reserve for unpaid losses and loss adjustment expenses at end of year per balance sheet, gross of reinsurance	$	82,492,674		$	74,893,509

The $124,595 favorable development in 2021 for insured events of prior years for the year ended December 31, 2021, was an improvement compared to the $7,959,048 adverse development of insured events of prior year for the year ended December 31, 2020, due primarily to increases during the year ended December 31, 2020, in 2018 and 2019 accident year IBNR reserves associated with the Apartments & Commercial Buildings and Transportation Business.

The 2020 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 estimate 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. 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, 2021:

Accident Year	Cumulative Incurred		Cumulative Paid		Total of Incurred but Not Reported Liabilities Plus Expected Development on Reported Claims			Cumulative Number of Reported Claims
2012		18,353,966		18,355,881		-			967
2013		22,852,457		22,849,314		(2	)		850
2014		17,965,556		17,817,189		(108,710	)		760
2015		25,332,806		23,197,570		(525,502	)		749
2016		27,006,706		24,528,218		(1,584,393	)		808
2017		26,103,135		21,188,239		(2,301,034	)		825
2018		19,179,716		13,750,695		(3,465,021	)		614
2019		18,723,515		10,898,586		(5,558,880	)		648
2020		22,611,110		9,769,654		(6,518,530	)		771
2021		23,198,334		5,027,785		(11,452,987	)		626
Total	$	221,327,301	$	167,383,131	$	(31,515,059	)

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

	Year ended December 31
	2021			2020
Cumulative incurred losses and ALAE	$	221,327,301		$	218,410,701
Less cumulative paid losses and ALAE		(167,383,131	)		(167,214,395	)
Reserve for unpaid losses and ALAE (latest 10 accident years)		53,944,170			51,196,306
Reserves for unpaid losses and ALAE (beyond latest 10 accident years)		68,604			79,703
Reserves for unpaid unallocated loss adjustment expenses		1,363,857			1,363,858
Reserve for unpaid losses and loss adjustment expenses, net of reinsurance		55,376,631			52,639,867
Reinsurance recoverable on unpaid losses and loss adjustment expenses		27,116,043			22,253,642
Reserve for unpaid losses and loss adjustment expenses, gross of reinsurance	$	82,492,674		$	74,893,509

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.